UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
EMERITUS CORPORATION
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(Name of Issuer)
Common Stock, $.0001 par value
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(Title of Class of Securities)
291005106
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(CUSIP Number)
Adam Anhang
Northstar Capital Partners, LLC
527 Madison Avenue, 17th Floor
New York, New York 10022
(212) 319-3400
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Copy to:
Patrick J. Dooley, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 24, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
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CUSIP No. 291005106
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON (ENTITIES
ONLY)
Merit Partners, LLC - EIN 13-3972848
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) /X/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
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AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
The Reporting Person is organized under the laws of New York
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7 SOLE VOTING POWER
NUMBER OF 1,373,626
SHARES _____________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH
REPORTING _____________________________________________
PERSON WITH 9 SOLE DISPOSITIVE POWER
1,373,626
----------------------------------------------
10 SHARED DISPOSITIVE POWER
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,626
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
approximately 11.1%
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14 TYPE OF REPORTING PERSON
00 - Limited Liability Company
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<PAGE>
SCHEDULE 13D
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CUSIP No. 291005106
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON (ENTITIES
ONLY)
George Soros (in the capacity described herein)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) /X/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
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PF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION The reporting person is a citizen
of the United States
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7 SOLE VOTING POWER
NUMBER OF 0
SHARES _____________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH
REPORTING _____________________________________________
PERSON WITH 9 SOLE DISPOSITIVE POWER
0
----------------------------------------------
10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
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14 TYPE OF REPORTING PERSON
IN; IA
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1 See Item 5.
<PAGE>
SCHEDULE 13D
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CUSIP No. 291005106
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON (ENTITIES
ONLY)
Soros Family Partners, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) /X/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
WC
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
The Reporting Person is organized under the laws of Delaware
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7 SOLE VOTING POWER
NUMBER OF 0
SHARES _____________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 0
REPORTING ______________________________________________
PERSON WITH 9 SOLE DISPOSITIVE POWER
0
----------------------------------------------
10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
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14 TYPE OF REPORTING PERSON
PN
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- ----------
1 See Item 5.
<PAGE>
Item 1. Security and Issuer.
This statement relates to the Common Stock, $.0001 par value (the "Common
Shares"), of Emeritus Corporation (the "Issuer"), an entity incorporated under
the laws of the State of Washington, whose principal executive offices are
located at 3131 Elliot Avenue, Suite 500, Seattle, Washington 98121. The Common
Shares are issuable upon conversion of the Series A Convertible Exchangeable
Redeemable Preferred Stock, $.0001 par value (the "Preferred Shares") of the
Issuer.
Item 2. Identity and Background.
This statement is filed by Merit Partners, LLC ("MP"), Soros Family
Partners, L.P. ("SFP") and Mr. George Soros.
MP is a New York limited liability company. The principal business address
and address of the principal office of MP is 527 Madison Avenue, 17th Floor, New
York, New York 10022. MP is a newly formed entity created to hold the Preferred
Shares of the Issuer. MP has two (2) members, Merit Operating, LLC ("MO"), which
holds a 10% interest, and Merit Equities, LLC ("ME"), which holds a 90%
interest. Both MO and ME are New York limited liability companies whose address
is 527 Madison Avenue, 17th Floor, New York, New York 10022. Each of MO and ME
was formed for the purpose of holding the interest in MP. ME has three (3)
members, MI Manager, LLC ("MI"), which initially holds an interest of
approximately 1%, SFP, which initially holds an interest of approximately 49.5%,
and George Soros, who initially holds an interest of approximately 49.5%. MI is
a New York limited liability company whose address is 527 Madison Avenue, 17th
Floor, New York, New York 10022. MI was formed for the purpose of holding the
interest in ME. MI's sole member is Northstar Capital Partners, LLC ("NCP"). SFP
is a Delaware limited partnership whose principal business is investing in
securities. The principal business address and the address of the principal
office of SFP is 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The
general partners of SFP are Gary Gladstein and Robert Soros. The business
address of Gary Gladstein is 888 Seventh Avenue, 33rd Floor, New York, New York
10106, and his principal occupation is serving as a Managing Director of Soros
Fund Management LLC, a Delaware limited liability company ("SFM LLC"). Gary
Gladstein is a United States citizen. The business address of Robert Soros is
888 Seventh Avenue, 33rd Floor, New York, New York 10106, and his principal
occupation is his position as an employee of SFM LLC and as a private investor.
Robert Soros is a United States citizen. The business address of George Soros is
888 Seventh Avenue, 33rd Floor, New York, New York 10106, and his principal
occupation is the direction of the activities of SFM LLC, which is carried out
in his capacity as Chairman of SFM LLC. George Soros is a United States citizen.
MO has two (2) members, Northstar Operating, LLC ("Northstar"), which holds a
99% interest, and Polaris Associates, LLC ("Polaris"), which holds a 1%
interest. Polaris is a Delaware limited liability company
<PAGE>
whose address is 527 Madison Avenue, 17th Floor, New York, New York 10022.
Polaris was formed for the purpose of holding interests in various affiliates of
Northstar. Polaris has two (2) members, Sextant Operating Corp. ("Sextant"),
which holds a 1% interest, and Northstar, which holds a 99% interest. Sextant is
a Delaware corporation whose address is 527 Madison Avenue, 17th Floor, New
York, New York 10022. Sextant was formed for the purpose of holding the interest
in Polaris. Sextant is 100% owned by Northstar. Northstar is a Delaware limited
liability company whose address is 527 Madison Avenue, 17th Floor, New York, New
York 10022. Northstar was formed for the purpose of acquiring equity interests
in various real estate ventures. Northstar has two (2) members, NCP, which holds
a 99% interest, and Northstar Capital Holdings I, LLC ("NCHI"), which holds a 1%
interest. Both NCP and NCHI are Delaware limited liability companies whose
business address is 527 Madison Avenue, 17th Floor, New York, New York 10022.
Each of NCP and NCHI was formed for the purpose of holding the interest in
Northstar. NCP has two (2) members, NCHI, which holds a 74.75% interest, and
Northstar Capital Holdings II, LLC ("NCHII"), which holds a 25.25% interest. The
business address for NCHII is 527 Madison Avenue, 17th Floor, New York, New York
10022. NCHII, a Delaware limited liability company, was formed for the purpose
of holding its interest in NCP. NCHII has three members, NCHI, which holds a 99%
interest, Edward Scheetz, who holds 0.5% interest, and David Hamamoto, who holds
0.5% interest. Mr. Scheetz, a U.S. citizen whose business address is 527 Madison
Avenue, 17th Floor, New York, New York 10022, is a founding member of NCP. Mr.
Hamamoto, a U.S. citizen whose business address is 527 Madison Avenue, 17th
Floor, New York, New York 10022, is a founding member of NCP. NCHI has two
members, Mr. Scheetz and Mr. Hamamoto, each of whom holds a 50% interest.
Pursuant to a certain Operating Agreement, dated as of October 24, 1997
(the "Operating Agreement"), by and between MO and ME, SFP and George Soros
(collectively, the "Soros entities") have the right to initiate a liquidation
procedure with respect to MP in the event that (i) either David Hamamoto or
Edward Scheetz shall cease to be active in the management of MO, (ii) MO or any
of its principals or affiliates shall have committed any fraud, (iii) the Soros
entities determine, at any time after October 24, 2000, to liquidate their
investment in the Issuer or (iv) if at any time after October 24, 1998, the
average closing price of the Common Shares for any period of 45 consecutive
trading days shall be less than 75% of the average closing price thereof for the
45 consecutive trading days preceding October 24, 1997.
The Operating Agreement is annexed hereto as Exhibit 2 and is hereby
incorporated by reference herein.
During the five years prior to the date hereof, none of (a) MP nor to MP's
knowledge any member of MP, (b) SFP, Gary Gladstein or Robert Soros or (c)
George Soros has (i) been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) during the last five years nor has been (ii)
a party
<PAGE>
to any civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree, or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities law or finding any
violation with respect to such laws.
The information contained herein concerning SFP and George Soros has been
provided by each of them, and they assume no responsibility for any other
information contained herein.
Item 3. Source and Amount of Funds or Other Consideration.
The Preferred Shares were purchased for $1,000 per share in cash pursuant
to a Preferred Stock Purchase Agreement, dated as of October 24, 1997 (the
"Stock Purchase Agreement") by and among the Issuer, as Seller, and MP, as
purchaser.
The source of funds used to pay for the Preferred Shares was a capital
contribution received from the members of MP.
The Stock Purchase Agreement is attached hereto as Exhibit 1 and is hereby
incorporated by reference herein.
Item 4. Purpose of Transaction.
MP has acquired the Preferred Shares to obtain a substantial equity
position in the Issuer for investment. Pursuant to a Shareholders' Agreement,
dated as of October 24, 1997 (the "Shareholders' Agreement"), by and among the
Issuer, Daniel R. Baty, B.F., Limited Partnership and MP, MP has certain rights
to representation on the Issuer's Board of Directors and has veto power over
certain actions of the Issuer. MP intends to exercise its rights under the
Shareholders' Agreement to insure that the Issuer is operated in an efficient
manner.
The Shareholders' Agreement is annexed to the Stock Purchase Agreement as
Exhibit C.
Other than as described above, as of the date hereof, none of MP or its
members or control persons has made any proposals to the Issuer which would
result in (i) acquisition by any person of additional securities of the Issuer,
or the disposition of securities of the Issuer except for open market or
privately negotiated purchases or sales of the Issuer's securities at times and
prices determined by the investment objectives of the Reporting Person; (ii) any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Issuer or any of its subsidiaries; (iii) any sale or
transfer of a material amount of assets of the Issuer or any of its
subsidiaries; (iv) any change in the present Board of Directors or managers of
the Issuer; (v) any material change in the present capitalization or dividend
policy of the Issuer; (vi) any other material change in the Issuer's business or
corporate structure;
<PAGE>
(vii) any change in the Issuer's charter, by-laws or instruments corresponding
thereto or other actions which may impede the acquisition of control of the
Issuer by any person; (viii) causing a class of securities of the Issuer to be
delisted from a national securities exchange; (ix) causing a class of securities
of the Issuer to become eligible for termination of registration pursuant to
Section 12(g)(4) of the Securities Exchange Act of 1934; or (x) any action
similar to any of those enumerated above.
MP intends to review its investment in the Issuer after the date hereof,
and from time to time, in light of the Issuer's operations, prospects, business
development and competitive and strategic matters. After such review, MP may
change its intention with respect to proposing one or more actions to enhance
shareholder value or to effect a change of control of the Issuer, including one
or more of the matters described in clauses (i) through (x) above.
The Reporting Persons reserve the right to acquire, or cause to be
acquired, additional securities of the Issuer, to dispose of, or cause to be
disposed, such securities at any time or to formulate other purposes, plans or
proposals regarding the Issuer or any of its securities, to the extent deemed
advisable in light of general investment and trading policies of the Reporting
Persons, market conditions or other factors.
Item 5. Interest in Securities of the Issuer.
(a) 1,373,626 Common Shares; approximately 11.1% interest in Issuer;
(b) sole power to vote - 1,373,626 Common Shares; sole power to dispose -
1,373,626 Common Shares;
(c) On October 24, 1997, pursuant to the Stock Purchase Agreement, MP
acquired from the Issuer an aggregate of 25,000 Preferred Shares (which shares
are convertible into 1,373,626 Common Shares) for an aggregate cash purchase
price of $25,000,000.
(d) Persons other than the Reporting Persons have the right to receive
dividends from the securities reported herein. ME is a 90% participant in MP,
and would have the right to receive proceeds from the liquidation of the Common
Shares if sold by MP.
(e) Not applicable.
Neither SFP nor George Soros currently exercises voting or dispositive
power over any of the securities reported herein. However, by virtue of certain
provisions of the limited liability company agreements of MP and ME, each of SFP
and George Soros, under certain circumstances, has certain rights with respect
to the Common Shares including, after October 24, 2000, the right to initiate
the liquidation of MP.
<PAGE>
Item 6. Contracts, Arrangements, Understandings
or Relationships with Respect to
Securities of the Issuer.
Other than the Stock Purchase Agreement attached hereto as Exhibit 1 and
the agreements attached as exhibits to the Stock Purchase Agreement, there are
no contracts, arrangements, understandings or relationships among MP, any of the
persons or entities described in Item 2 and the Issuer with respect to
securities of the Issuer.
Item 7. Items to be Filed as Exhibits.
Exhibit 1 Preferred Stock Purchase Agreement, dated as of October 24,
1997, by and among Emeritus Corporation, as Seller, and Merit
Partners, LLC, as Purchaser.
Exhibit 2 Operating Agreement, dated as of October 24, 1997, by and
between Merit Operating, LLC and Merit Investor, LLC.
Exhibit 3 Joint Filing Agreement pursuant to Rule 13d-1(f).
Exhibit 4 Power of Attorney.
<PAGE>
Signatures
The undersigned certify that, after reasonable inquiry and to the best of
their respective knowledge and belief, the information set forth in the Schedule
13D is true, complete and correct.
November 3, 1997
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ W. Edward Scheetz
------------------------------
Name: W. Edward Scheetz
Title: Authorized Signatory
<PAGE>
/s/ Sean C. Warren
-----------------------------------
GEORGE SOROS
By: Sean C. Warren,
Attorney-in-Fact
SOROS FAMILY PARTNERS, L.P.
By: /s/ Gary Gladstein
-----------------------------
Name: Gary Gladstein,
Title: General Partner
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PREFERRED STOCK PURCHASE AGREEMENT
By and Among
EMERITUS CORPORATION
as Seller,
and
MERIT PARTNERS, LLC,
as Purchaser.
---------------------------
Dated as of October 24, 1997
---------------------------
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<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT, dated as of October 24, 1997, by and
among EMERITUS CORPORATION, a Washington corporation (the "Company"), as seller,
and Merit Partners, LLC, a New York limited liability company ("Purchaser"), as
purchaser.
R E C I T A L S :
A. The Company proposes to issue and sell to the Purchaser for cash 25,000
shares (the "Preferred Shares") of its 9% Cumulative Convertible Exchangeable
Redeemable Preferred Stock, par value $.0001 per share (the "Preferred Stock").
B. The Preferred Shares will be issued pursuant to and subject to the terms
and conditions of this Agreement (the term "this Agreement" as used herein or in
any Exhibit or Schedule hereto shall mean this Agreement and the Exhibits and
Schedules hereto individually and collectively as they may from time to time be
modified or amended).
A G R E E M E N T :
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" means, with respect to any Person, either (i) any Subsidiary of
such Person, or (ii) any other Person that, directly or indirectly, controls, is
controlled by or is under common control with such Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management
<PAGE>
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and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Agreement" has the meaning set forth in the preamble of this Agreement.
"AMEX" is defined in Section 3.1(g) of this Agreement.
"Business Day" means any day except Saturday, Sunday and any day that is a
legal holiday or on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Closing" has the meaning provided therefor in Section 2.1 of this
Agreement.
"Closing Date" means the date that the Closing actually occurs.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Designation" means that certain statement of designation of rights and
preferences and other characteristics of the Series A Convertible Exchangeable
Redeemable Preferred Stock of Seller, annexed hereto as Exhibit A, pursuant to
which the Preferred Stock was authorized by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Losses" means all damages, losses, penalties, fines, settlement payments,
obligations to third parties, claims, costs or expenses actually suffered or
incurred by such Person excluding any consequential, special or punitive
damages.
"Operating Agreement" means the operating agreement of Purchaser, dated as
of October 24, 1997, by and between Merit Operating, LLC and Merit Investor,
LLC.
<PAGE>
-3-
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Shares" has the meaning set forth in the preamble of this
Agreement.
"Preferred Stock" has the meaning set forth in the preamble of this
Agreement.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Registration Rights Agreement" means the certain registration rights
agreement annexed hereto as Exhibit B.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" is defined in Section 3.1(l) of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholders' Agreement" means that certain shareholders' agreement
annexed hereto as Exhibit C.
"Subsidiary" means, with respect to any Person, (i) a corporation, a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by a Subsidiary of such Person or by such Person and a Subsidiary thereof or
(ii) any other Person (other than a corporation) in which such Person, a
Subsidiary thereof or such Person and a Subsidiary thereof, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest.
"Transaction Documents" is defined in Section 3.1(d) of this Agreement.
Section 1.2. Construction. When used herein the words "herein",
"hereunder", "hereby", "hereof" and similar words refer to this Agreement as a
whole. All references to a party's "knowledge" refer to actual knowledge and not
to any constructive or imputed knowledge.
<PAGE>
-4-
ARTICLE II
PURCHASE OF SHARES
Section 2.1. Purchase of Shares; the Closing.
(a) On the terms and subject to the conditions herein set forth, the
Company shall sell to Purchaser and Purchaser shall purchase from the Company on
the Closing Date the Preferred Shares for a purchase price of $25,000,000.
(b) The purchase and sale of the Preferred Shares shall take place at a
closing (the "Closing") to be held at the offices of Cahill Gordon & Reindel, 80
Pine Street, New York, New York 10005, at 10:00 a.m. local time, on the date
hereof.
(c) Delivery of the Preferred Shares shall be made at the Closing by
delivery to Purchaser, against payment of the purchase price therefor provided
in Section 2.1(a), of a stock certificate representing the Preferred Shares duly
registered in the name of Purchaser.
(d) Payment of the purchase price to the Company for the Preferred Shares
shall be made by wire transfer of same day funds pursuant to the Company's
written instructions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company.
In order to induce Purchaser to purchase the Preferred Shares, the Company
hereby represents and warrants to, and agrees with, Purchaser and its
successors, endorsees and assigns that:
(a) Statement of Designation. The Company has filed the Designation
with the Secretary of State of the State of Washington. The Designation and
the resolutions of the Company's Board of Directors contained therein are
in full force and effect.
<PAGE>
-5-
(b) Organizational Documents. The Company has delivered to Purchaser
an accurate and complete copy of (a) its Restated Articles of Incorporation
and all amendments thereto, certified by the Secretary of State of the
State of Washington, and (b) its Amended and Restated By-laws and all
amendments thereto, certified by its Secretary or Assistant Secretary.
(c) Existence and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Washington. The Company is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction where standing
to so qualify or be in good standing as a foreign corporation could
reasonably be expected to have a material adverse effect on its business,
operations, properties or condition (financial or otherwise), or its
ability to perform its obligations hereunder.
(d) Power and Authority. The Company has all corporate power and
authority necessary to own, operate or lease its properties and assets and
to conduct its business as now conducted by it. The Company has all
corporate power and authority necessary to issue the Preferred Shares
pursuant to the Designation, and to execute, deliver, and perform its
obligations under this Agreement, the Registration Rights Agreement and the
Shareholders' Agreement (collectively, the "Transaction Documents").
(e) Corporate Action. The Company has taken all corporate action
required to authorize the issuance of the Preferred Shares pursuant to the
Designation and the execution, delivery and performance of the Transaction
Documents.
(f) Due Execution and Delivery. The Company has duly executed and
delivered each of the Transaction Documents. The certificates representing
the Preferred Shares have been duly and properly authorized, executed and
delivered pursuant to the Designation.
(g) Consents; Governmental Approvals. No consent or approval of any
person, firm or corporation, and no consent, license, approval or
authorization of, or registration, filing or declaration with, any
governmental authority is required to be obtained or made by or on behalf
of the Company in connection with the offer, issuance and sale of the
Preferred Shares, the execution, delivery
<PAGE>
-6-
or performance of any of the Transaction Documents or the completion of the
transactions contemplated thereby, except for (i) the approval of the Board
of Directors of the Company, (ii) the filing of the Designation in the
state of Washington, and (iii) filings with the SEC, the American Stock
Exchange ("AMEX") and under state securities laws that may be required; in
the cases of (i) and (ii) above, each of which shall have been obtained or
made prior to or simultaneously with the closing of the sale of Preferred
Shares on the Closing Date.
(h) Binding Effect. Each of the Transaction Documents is a legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally or
limitations on the availability of equitable remedies and except as rights
to indemnification and contribution may be limited under federal and state
securities laws.
(i) Absence of Conflicts. The issuance of the Preferred Shares and the
execution, delivery and performance of the Transaction Documents by the
Company do not and will not (i) conflict with or violate any provision of
the Restated Articles of Incorporation or Amended and Restated By-laws of
the Company, (ii) conflict with or result in a violation, breach or default
by the Company under (x) any provision of any existing statute, law, rule
or regulation binding on it or any order, judgment, award, decree, license
or authorization of any court or governmental instrumentality, authority,
bureau or agency binding on it, or (y) any material provision of any
mortgage, indenture, lease or other contract, agreement, instrument or
undertaking to which it is a party or will be a party immediately after the
Closing, or by which or to which it or any of its property or assets is now
or immediately after the Closing will be bound or subject, or (iii) result
in the creation or imposition of any lien, encumbrance or other charge on
any of its properties or assets.
(j) No Defaults. None of the Company or its Subsidiaries is, or
immediately after the Closing will be, in default under or in violation of
(i) its Restated Articles of Incorporation or Amended and Restated By-laws,
(ii) any agreement or instrument to which it is a party relating to its
indebtedness for borrowed money, (iii) any
<PAGE>
-7-
other agreement or instrument to which it is a party, (iv) any statute,
rule, writ, injunction, judgment, decree, order or regulation of any court
or governmental authority having jurisdiction over it, or (v) any license,
permit, certification or approval requirement of any customer, supplier,
governmental authority or other person, in any way that could reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets or condition (financial or otherwise) of the Company or
the Company's ability to perform its obligations under any of the
Transaction Documents.
(k) Capitalization and Stockholders. The entire authorized, issued and
outstanding capital stock of the Company was as set forth in the SEC
Documents, on and as of the dates indicated therein. Immediately after the
Closing, all outstanding shares of capital stock will be duly and validly
issued and after the Closing, except as described in the SEC Documents and
other public announcements by the Company, and except for the Preferred
Shares, there will be no options, warrants or other rights outstanding or
proposed involving the issuance of any additional shares of capital stock
of the Company, and except for (i) the Registration Rights Agreement, (ii)
that certain registration rights agreement, dated as of February 8, 1996,
between the Company and holders of its 6.25% Convertible Subordinated
Debentures due 2006 and (iii) that certain shareholder agreement, dated as
of April 17, 1995, between Assisted Living of America, Inc. and various
other parties, there will be no agreements or other instruments providing
registration rights to stockholders or holders of other securities of the
Company.
(l) SEC Documents. (i) The Common Stock of the Company is registered
pursuant to Section 12(b) of the Exchange Act and the Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d),
in addition to one or more registration statements and amendments thereto
heretofore filed by the Company with the SEC. The Company has delivered or
made available to the Purchaser true and complete copies of (i) its annual
reports on Form 10-K and quarterly reports on Form 10-Q for its 1995 and
1996 fiscal years, (ii) proxy statements, information and solicitation
materials filed by the Company with the SEC since January 1, 1996, and
(iii) each other report, registration
<PAGE>
-8-
statement, proxy statement and other document filed with the SEC since the
filing of its most recent Form 10-K (all of the foregoing, collectively,
the "SEC Documents"). The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement.
(ii) As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and other
federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(m) Financial Statements. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes
or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(n) No Material Adverse Change. Since June 30, 1997, the date through
which the most recent quarterly report of the Company on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, there has been no material adverse change in the businesses,
properties, prospects, operations or financial condition of the Company and
its Subsidiaries, except as otherwise disclosed or reflected in other SEC
Documents, or otherwise disclosed in writing to the Purchasers on or before
the Closing Date.
<PAGE>
-9-
(o) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its Subsidiaries, or
their respective businesses, properties, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure
or announcement by the Company and which has not been so publicly disclosed
or announced, or otherwise disclosed in writing to the Purchasers on or
before the Closing Date.
(p) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection
with the offer or sale of the Preferred Shares.
(q) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would require
registration of the Preferred Shares under the Securities Act.
(r) Brokers. The Company represents and warrants that it has employed
no brokers, agents or finders in carrying on the negotiations relating to
this Agreement or to the transactions herein contemplated.
(s) Untrue or Misleading Statements. Neither this Agreement nor any
other Transaction Document or other agreement, certificate, instrument or
written statement furnished by or on behalf of the Company to the Purchaser
in connection with the transactions contemplated by this Agreement,
(including the SEC Documents but excluding any financial forecasts or
projections furnished to or reviewed by the Purchaser), when taken
together, contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which such statement were made.
(t) Reservation of Common Stock. As of the Closing, the Company shall
have reserved for issuance, and will at all times keep available, a
sufficient number of shares of Common Stock to permit the conversion of all
<PAGE>
-10-
Preferred Shares into Common Stock. Such Common Stock when issued upon such
conversion will be duly authorized, fully paid and nonassessable.
(u) Status of Shares. The Preferred Shares, upon issuance by the
Company following receipt of the consideration provided for herein and
satisfaction of the other conditions set forth herein, will be duly
authorized, fully paid and nonassessable.
(v) Government Regulations. The Company is not (i) an "investment
company" as defined in or subject to regulation under the Investment
Company Act of 1940, as amended, or controlled by an "investment company",
or (ii) subject to regulation under the Public Utility Holding Company Act
of 1935.
Section 3.2. Representations and Warranties of Purchaser. Purchaser
represents and warrants to the Company, as of the date hereof, as follows:
(a) Investment Intent. The Preferred Shares to be acquired hereunder are
being acquired for its own account with no intention of distributing or
reselling such Preferred Shares or any part thereof or interest therein in any
transaction that would be in violation of the securities laws of the United
States or any State. It is understood that the certificates evidencing the
Preferred Shares may bear one or more legends, including a legend substantially
as follows:
The securities evidenced by this certificate have not been registered under
the Act, or applicable state securities law, and no interest therein may be
sold, distributed, assigned, offered, pledged or otherwise transferred
unless (i) there is an effective registration statement under the Act and
applicable state securities laws covering any such transaction involving
said securities, (ii) this corporation receives an opinion of legal counsel
for the holder of these securities reasonably satisfactory to this
corporation stating that such transaction is exempt from registration, or
(iii) this corporation otherwise satisfies itself that such transaction is
exempt from registration.
(b) Transfer Restrictions. Purchaser acknowledges that the Preferred Shares
are subject to restrictions on transfer and represents and warrants that it has
reviewed and is fa-
<PAGE>
-11-
miliar with the provisions of the Designation and the Transaction Documents
which impose such restrictions.
(c) Purchaser Status. Purchaser is an "accredited investor" as defined in
Rule 501(a) under the Exchange Act, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Preferred Shares to be
acquired hereunder, has so evaluated the merits and risks of such investment and
is able to bear the economic risk of such investment and, at the present time,
is able to afford a complete loss of such investment.
(d) Authorization; Execution. The purchase of the Preferred Shares to be
acquired hereunder has been duly and properly authorized by the Purchaser by all
necessary action and the Transaction Documents have been duly executed and
delivered by it and neither the purchase of the Preferred Shares to be acquired
hereunder nor the execution and performance of the Transaction Documents
conflicts with or violates its operating agreement or any law, regulation or
court order applicable to it or any other agreement to which it is subject.
(e) Purchaser's Investigation. Purchaser has made such examination, review
and investigation of facts and circumstances necessary to evaluate the purchase
of the Preferred Shares to be acquired hereunder as it has deemed necessary or
appropriate and has made its own investment determination and analysis based
upon such information as Purchaser deemed sufficient to enter into this
Agreement and not based on any statements or representations by the Company.
(f) Organization; Organizational Documents. Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of New York. Purchaser has all requisite power and
authority to own and lease its properties and to carry on its business as
presently conducted except where a lack of such power would not reasonably be
expected to have a material adverse effect upon the financial condition,
business, or results of operations of Purchaser. Purchaser has all the power and
authority necessary to execute, deliver and perform its obligations under the
Transaction Documents. Purchaser has delivered to the Company an accurate and
complete copy of (i) its Articles of Organization, certified by the Secretary of
State of the State of New York and (ii) the Operating Agreement.
<PAGE>
-12-
(g) Consents; Governmental Approvals. No consent or approval of any person,
firm or corporation, and no consent, license, approval or authorization of, or
registration, filing or declaration with, any governmental authority is required
to be obtained or made by or on behalf of Purchaser in connection with the
purchase of the Preferred Shares, the execution, delivery or performance by the
Purchaser of any of the Transaction Documents or the completion of the
transactions contemplated thereby, except for the approval of Merit Operating,
LLC, a New York limited liability company and the managing member of Purchaser;
such approval shall have been obtained or made to or simultaneously with the
closing of the sale of Preferred Shares on the Closing Date.
(h) Binding Effect. Each of the Transaction Documents is a legal, valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or limitations on the availability of
equitable remedies and except as rights to indemnification and contribution may
be limited under federal and state securities laws.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase Preferred Shares hereunder on the
Closing Date shall be subject to the satisfaction of each of the following
conditions precedent on the Closing Date:
Section 4.1. Representations. All representations and warranties made in
this Agreement, any other Transaction Document and in any other agreement,
certificate or instrument furnished to Purchaser in connection herewith shall be
true and correct in all material respects with the same force and effect as
though such representations and warranties had been made at the time of, and
immediately after giving effect to, the sale of Preferred Shares.
Section 4.2. No Material Adverse Change. Purchaser shall be satisfied that
no event, circumstance or condition shall have occurred and be continuing that
could reasonably be expected to have a material adverse effect on the Company's
<PAGE>
-13-
business, operations, prospects, properties or condition (financial or
otherwise), or its ability to perform its obligations hereunder.
Section 4.3. Suspension of Trading. Trading in the Company's Common Stock
shall not have been suspended by the SEC or any exchange on which it is listed
for trading (except for any suspension of trading of limited duration agreed to
by the Company solely to permit dissemination of material information regarding
the Company), and trading in securities generally as reported by such
exchange(s) shall not have been suspended or limited.
Section 4.4. Registration Rights Agreement. The Company shall have executed
and delivered to Purchaser a Registration Rights Agreement substantially in the
form of Exhibit B attached hereto.
Section 4.5. Shareholders' Agreement. The Company shall have executed and
delivered to Purchaser a Shareholders' Agreement substantially in the form of
Exhibit C attached hereto.
Section 4.6. Legal Opinion. The Company shall have delivered to Purchaser
the executed legal opinion of counsel to the Company, dated the Closing Date, in
form and substance reasonably satisfactory to the Purchaser and their counsel.
Section 4.7. Additional Documents. Purchaser shall have received all such
agreements, documents, instruments, approvals, certificates, legal opinions and
information as the Purchaser shall reasonably request in connection with this
Agreement, the Preferred Shares and the transactions herein and therein
contemplated, all of which shall be in form and in substance reasonably
satisfactory to Purchaser and its counsel.
Section 4.8. Additional Matters. All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to Purchaser.
Section 4.9. No Governmental Proceeding or Litigation. At the Closing Date,
no order, injunction, decree or judgment of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby, and no suit, action, investigation, inquiry or proceeding by any
governmental body, or legal or administrative proceeding by any governmental
body shall have been instituted, or
<PAGE>
-14-
threatened in writing, which questions the validity or legality of the
transactions contemplated hereby.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company under this Agreement to consummate the sale
of the Preferred Shares to be acquired by Purchaser hereunder and the other
transactions contemplated hereby shall be subject to the satisfaction, on or
before the Closing Date, of the following conditions:
Section 5.1. Representations and Warranties True. The representations and
warranties contained in Section 3.2 hereof are true and accurate in all material
respects as of the date when made (or with respect to those representations
stated to be as of a different date, as of such date).
Section 5.2. Performance of Covenants. Purchaser shall have performed and
complied, in all material respects, with each and every covenant, agreement and
condition required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
Section 5.3. No Governmental Proceeding or Litigation. At the Closing Date,
no order, injunction, decree or judgment of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby, and no suit, action, investigation, inquiry or proceeding by any
governmental body, or legal or administrative proceeding by any governmental
body shall have been instituted, or threatened in writing, which questions the
validity or legality of the transactions contemplated hereby.
Section 5.4. Shareholders' Agreement. Purchaser shall have executed and
delivered to the Company a Shareholders' Agreement substantially in the form of
Exhibit C attached hereto.
Section 5.5 Legal Opinion. Purchaser shall have delivered to the Company
the executed legal opinion of counsel to Purchaser, dated the Closing Date, in
form and substance reasonably satisfactory to the Company and their counsel.
<PAGE>
-15-
Section 5.6 Additional Documents. The Company shall have received all such
agreements, documents, instruments, approvals, certificates, legal opinions and
information as the Company shall reasonable request in connection with this
Agreement, the Preferred Shares and the transactions herein and therein
contemplated, all of which shall be in form and in substance reasonably
satisfactory to the Company and its counsel.
Section 5.7 Additional Matters. All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to the Company.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that:
Section 6.1. Registration and Listing. The Company will use its best
efforts to cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, will comply with all
requirements related to any registration statement filed pursuant to this
Agreement and will not take any action or file any document (whether or not
permitted by the Securities Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under such Acts. The Company will use its best efforts to
continue the listing or trading of its Common Stock on the AMEX or Nasdaq
National Market and comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of such exchange or Nasdaq, as
the case may be.
Section 6.2. Financial Statements and Information. The Company will furnish
or cause to be furnished to the Purchaser the following financial statements and
information:
(a) All reports and other written communications delivered by the
Company to its stockholders as such, and all registration statements (when
available to the public) and periodic reports filed by the Company with the
SEC or any securities exchange, pursuant to the Securities Act,
<PAGE>
-16-
the Exchange Act, or the rules of such securities exchange.
(b) With reasonable promptness, (i) all financial statements or
reports (including comment letters to management) furnished to the Company
by its independent certified public accountants, and (ii) all press
releases other than press releases dealing with the sale of its products in
the usual and ordinary course of its business.
Section 6.3. Use of Proceeds. The Company will use the proceeds received
from the sale of Preferred Shares (a) for general corporate purposes and real
estate and corporate acquisitions and (b) to fund the legal and other reasonable
expenses of the transactions contemplated by this Agreement and all other
agreements delivered in connection herewith and therewith.
Section 6.4. Expenses. The Company will pay all reasonable out-of-pocket
expenses of Purchaser in connection with this Agreement and the transactions
contemplated hereby.
Section 6.5. Public Announcements; Confidentiality. Except as agreed by the
Company and the Purchaser and except for such disclosures as may be required by
law, legal process or regulatory authority, neither party hereto shall issue any
press release or otherwise make any announcement or disclosure concerning the
transactions herein contemplated unless such information is already in the
public domain.
Section 6.6. Sales and Transfer Taxes. All transfer taxes incurred in
connection with this Agreement and the transactions contemplated hereby shall be
borne by the Company.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1. Survival of Agreements. The representations and warranties of
the Company and of Purchaser set forth in Article III hereof shall survive the
Closing until the second anniversary of the date of this Agreement.
Section 7.2. Indemnification by the Company. The Company shall indemnify
and hold harmless Purchaser from and against any and all Losses suffered or
incurred by Purchaser as
<PAGE>
-17-
a result of the breach or incorrectness of any representation and warranty of
the Company set forth in Section 3.1 of this Agreement. Purchaser shall promptly
notify the Company in writing of the occurrence of any event, or of its
discovery of any facts, which in Purchaser's opinion entitle or may entitle it
to indemnification hereunder. Purchaser's failure to do so shall not preclude it
from seeking indemnification hereunder from the Company unless such failure has
materially prejudiced the Company's ability to defend as provided herein. With
respect to any threatened or asserted claims of third parties, the Company shall
have the right to defend such claims by counsel of their choosing and to direct
or control the defense and settlement thereof. Purchaser shall cooperate in all
reasonable respects with such counsel. In no event shall the indemnification
obligations of the Company exceed the aggregate sale price of the Preferred
Shares sold by the Company pursuant to this Agreement, plus reasonable legal
fees and expenses.
Section 7.3. Indemnification by Purchaser. Purchaser shall indemnify and
hold harmless the Company from and against any and all Losses suffered or
incurred by the Company as a result of the breach or incorrectness of any
representation and warranty of the Company set forth in Section 3.2 of this
Agreement. The Company shall promptly notify Purchaser in writing of the
occurrence of any event, or of its discovery of any facts, which in the
Company's opinion entitle or may entitle it to indemnification hereunder. The
Company's failure to do so shall not preclude it from seeking indemnification
hereunder from Purchaser unless such failure has materially prejudiced
Purchaser's ability to defend as provided herein. With respect to any threatened
or asserted claims of third parties, Purchaser shall have the right to defend
such claims by counsel of its choosing and to direct or control the defense and
settlement thereof. The Company shall cooperate in all reasonable respects with
such counsel. In no event shall the indemnification obligations of the Purchaser
exceed the aggregate purchase price of the Preferred Shares purchased by the
Purchaser pursuant to this Agreement. Notwithstanding the foregoing, no
representation, warranty, covenant or acknowledgment made herein by the
Purchaser shall in any manner be deemed to constitute a waiver of any rights
granted to it under the Exchange Act or state securities laws.
<PAGE>
-18-
ARTICLE VIII
MISCELLANEOUS
Section 8.1. No Waiver; Modifications in Writing. (a) No failure or delay
on the part of the Company or Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or Purchaser at law or in equity.
No waiver of or consent to any departure by the Company or Purchaser from any
provision of this Agreement shall be effective unless in writing and signed by
the party entitled to the benefit thereof. No amendment, modification or
termination of any provision of this Agreement shall be effective unless in
writing and signed by or on behalf of the Company and Purchaser. Any amendment,
supplement or modification of or to any of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given.
Section 8.2. Notices. All notices and demands provided for hereunder shall
be in writing, and shall be given by registered or certified mail, return
receipt requested, telecopy, courier service or personal delivery, and, if to
Purchaser, addressed to Purchaser at:
Merit Partners, LLC
299 Park Avenue, 33rd Floor
New York, New York 10022
Attention: Richard J. Sabella
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan I. Mark, Esq.
Telephone: (212) 701-3000
Telecopy: (212) 269-5420
<PAGE>
-19-
or to such other address as Purchaser may designate to the Company in writing
and, if to the Company, addressed to the Company at:
Emeritus Corporation
3131 Elliot Avenue
Suite 500
Seattle, Washington 98121
Attention: Kelly J. Price
Telephone: (206) 298-2909
Telecopy: (206) 301-4500
With a copy to:
Perkins & Coie
1201 Third Avenue
Seattle, Washington 98101
Attention: Michael E. Stansbury, Esq.
Telephone: (206) 583-8771
Telecopy: (206) 583-8500
or to such other address as the Company may designate in writing. All such
notices and demands shall be deemed given when received.
Section 8.3. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
Section 8.4. Binding Effect; Assignment. The rights of Purchaser or the
Company under this Agreement may not be assigned to any other Person except with
the prior written consent of the other parties hereto. This Agreement shall not
be construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement, and their respective successors and permitted
assigns. This Agreement shall be binding upon the Company and Purchaser, and
their respective successors and permitted assigns.
Section 8.5. GOVERNING LAW. (a) THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN
<PAGE>
-20-
ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE NOW OR
HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE PREFERRED SHARES OR THE SECURITIES INTO
WHICH THEY MAY BE CONVERTED OR FOR WHICH THEY MAY BE EXCHANGED.
(c) Upon breach or default by the Company with respect to any obligation
hereunder, under the Preferred Shares or the Securities into which they may be
converted or for which they may be exchanged, the Purchaser (or its agents)
shall be entitled to protect and enforce their rights at law, or in equity or by
other appropriate proceedings for specific performance of such obligation, or
for an injunction against such breach or default, or in aid of the exercise of
any power or remedy granted hereby or thereby or by law.
Section 8.6. Severability of Provisions. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 8.7. Headings. The Article and Section headings used or contained
in this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
Section 8.8. No Reliance. Each party hereto acknowledges that it has
obtained separate advice with respect to the legal, tax and accounting
consequences of the transactions contemplated by this Agreement, and that it has
neither sought nor relied upon any such advice from any other party hereto or
its Affiliates.
Section 8.9. Entire Agreement. This Agreement and agreements executed
contemporaneously herewith constitute the entire agreement among the parties
with respect to the purchase and sale of the Preferred Shares to be acquired by
Purchaser hereunder, and, as of the date hereof, there are no promises or
undertakings with respect thereto relative to the subject matter hereof not
expressly set forth or referred to herein.
<PAGE>
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Section 8.10. Further Assurances. Each of the Company and the Purchaser
will execute and deliver or cause to be executed and delivered such further
instruments and do or cause to be done such further acts as may be reasonably
necessary to carry out its obligations under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
EMERITUS CORPORATION
By: /s/ Kelly J. Price
----------------------------
Name: Kelly J. Price
Title: Vice President of Finance,
Chief Financial Officer and Secretary
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ David Hamamoto
-----------------------------
Name: David Hamamoto
Title: Authorized Signatory
<PAGE>
EXHIBIT A
DESIGNATION
OF RIGHTS AND PREFERENCES
OF
SERIES A CONVERTIBLE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
OF
EMERITUS CORPORATION
------------------------
A series of Preferred Stock of Emeritus Corporation (the "Company") is
hereby designated with the rights, preferences, privileges and limitations set
forth below.
1. Designation and Amount.
The shares of such series shall be designated "Series A Convertible
Exchangeable Redeemable Preferred Stock" (the "Series A Preferred Stock"),
$.0001 par value, with a stated value of $1,000 per share and the number of
shares constituting the Series A Preferred Stock shall be 25,000.
2. Dividends.
(a) Rate and Payment. The holders of record of shares of the Series A
Preferred Stock, when and as declared by the Board of Directors out of any
assets legally available therefor, shall be entitled to receive cumulative
dividends at the rate per annum and per share equal to the Accrual Rate (as
defined below) of the stated value per share of the Series A Preferred Stock.
Such dividends shall be payable quarterly in arrears on January 1, April 1, July
1 and October 1 of each year ("Dividend Payment Dates") commencing January 1,
1998, until the earlier to occur of (i) the date of any conversion, exchange or
redemption of the Series A Preferred Stock (but only with respect to those
shares of Series A Preferred Stock so converted, exchanged or redeemed) or (ii)
October 24, 2004 (the "Maturity Date"). Dividends on outstanding Series A
Preferred Stock shall accrue from the date of original issuance of such Series A
Preferred Stock. If the holders of record of shares of the Series A Preferred
Stock do not receive on a Dividend Payment Date the full dividends provided for
above, such dividends shall cumulate, whether or not earned or declared.
Whenever, at any time or times, cash dividends shall be in arrears in an amount
equal to six (6) full consecutive quarterly dividends, accrued and unpaid
dividends shall be compounded quar-
<PAGE>
-2-
terly (retroactive to the date on which dividends were last paid) commencing at
the time such sixth quarterly dividend is due and payable and ending when the
number of unpaid dividends has been reduced below six by payment of some or all
of the dividends in arrears. The amount of any dividends "accrued" on any share
of the Series A Preferred Stock at any date shall be calculated as the amount of
any unpaid dividends accumulated to and including the date as of which the
calculation is made, compounded as set forth above, whether or not earned or
declared. "Accrual Rate" means 9% per annum unless the Company shall be in
default in payment of dividends or performance of its obligations hereunder, in
which case and for which periods such rate shall be 11% per annum.
(b) Restricted Payments; Dividend Arrearages. So long as any of the shares
of Series A Preferred Stock are outstanding, no dividends shall be paid or
declared, nor any distribution be made, on the Company's Common Stock, par value
$.0001 per share ("Common Stock"), nor shall any shares of Common Stock, or any
other security junior to the Series A Preferred Stock, be acquired by the
Company for consideration other than consideration constituting capital stock of
the Company, unless all dividends then payable on the Series A Preferred Stock
shall have been paid or declared and payment thereof provided for.
3. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary (a "Liquidation"), the holders of the
Series A Preferred Stock shall be entitled to receive a preferential amount
equal to $1,000 for each share of Series A Preferred Stock then held by them
(subject to adjustment in the event of any stock dividend, stock split, stock
distribution or combination with respect to such shares) (the "Liquidation
Preference") plus an amount equal to any accrued but unpaid dividends, prior and
in preference to any such distribution to the holders of the Common Stock or any
other class or series of the Company's capital stock ranking junior as to
liquidation rights to the Series A Preferred Stock; provided, however, that such
rights shall accrue to the holders of Series A Preferred Stock only in the event
that the Company's payments with respect to the liquidation preferences of the
holders of capital stock of the Company, if any, ranking senior as to
liquidation rights to the Series A Preferred Stock are fully met. Upon receipt
of such amount, the holders of the Series A Preferred Stock shall have no
further rights to participate in any remaining assets of the
<PAGE>
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Company. If upon the occurrence of such event the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets of the Company legally available for
distribution shall be distributed among the holders of the Series A Preferred
Stock in proportion to the full preferential amount each such holder is
otherwise entitled to receive.
(b) A reorganization, consolidation or merger of the Company with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Company, shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 3.
4. Redemption.
(a) Mandatory Redemption. The Company shall be obligated to redeem on the
Maturity Date (to the extent such redemption shall not violate any applicable
provisions of the laws of the State of Washington), at a price per share equal
to the Liquidation Preference thereof, together with any accrued but unpaid
dividends, all of the shares of Series A Preferred Stock. If the Company is
unable on the Maturity Date to redeem the Series A Preferred Stock because such
redemption would violate the applicable laws of the State of Washington, then
the Company shall redeem such shares as soon thereafter as redemption would not
violate such laws.
(b) Optional Redemption.
(i) At any time on or after October 24, 2001, the Company may redeem all,
or any portion, of the Series A Preferred Stock then outstanding, if the Sale
Price (as defined below) of the Common Stock in its principal trading market is
at least 130% of the then effective Conversion Price (as defined below) in
effect for any 20 Trading Days out of any 40 consecutive Trading Days ending not
more than five Trading Days prior to the date the notice of redemption is mailed
at the redemption price per share equal to 105% of the Liquidation Preference,
together with any accrued and unpaid dividends on such shares. The Company shall
effect each such redemption pro rata according to the number of shares of Series
A Preferred Stock held by each holder thereof.
(ii) For purposes of this statement of designation, the date of any
redemption pursuant to subsection 4(b)(i) is hereinafter referred to as an
"Optional Redemption Date." For
<PAGE>
-4-
purposes of this statement of designation, "Trading Day" means a day on which
the principal national securities exchange on which the Common Stock is listed
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a day on which any New
York Stock Exchange member firm is open for the transaction of business; the
"Sale Price" of Common Stock shall be the reported closing price of the Common
Stock on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last reported sale price of
the Common Stock on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or, in the case no such sale price is so reported
on such day, the closing bid price quotation therefor on the NASDAQ, or, in case
no such quotation is available, the price determined in the good faith judgment
of the Board of Directors of the Company (irrespective of the accounting
treatment thereof).
(c) Redemption Procedures.
(i) For purposes of this statement of designation, "Redemption Date" shall
refer to the Maturity Date or any Optional Redemption Date, and the applicable
redemption price per share as at such Redemption Date is hereinafter referred to
as the "Redemption Price." At least 20 but not more than 60 days prior to any
Redemption Date, written notice shall be mailed, first class, postage prepaid,
to each holder of record of Series A Preferred Stock to be redeemed, at his or
its post office address last shown on the records of the Company, notifying such
holder of the number of shares so to be redeemed, calling upon such holder to
surrender to the Company, in the manner and at the place designated, its
certificate or certificates representing the shares to be redeemed (such notice
is hereinafter referred to as the "Redemption Notice") and stating the
Redemption Price for such shares to be redeemed. On or prior to each Redemption
Date, each holder of Series A Preferred Stock to be redeemed shall surrender its
certificate or certificates representing such shares to the Company, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares, together with any accrued but unpaid dividends
on such shares to the Redemption Date, shall be payable to the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be
<PAGE>
-5-
issued representing the unredeemed shares. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of the Series A Preferred Stock designated for redemption
in the Redemption Notice as holders of Series A Preferred Stock of the Company
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose whatsoever.
(ii) Neither failure to mail a Redemption Notice, nor any defect therein or
in the mailing thereof, to any particular holder shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect to any
other holder. Any Redemption Notice mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives the notice.
(iii) If the Redemption Notice has been given pursuant to this Section 4
and any holder of shares of Series A Preferred Stock to be redeemed shall, prior
to the close of business on the Redemption Date, give written notice to the
Company pursuant to Section 7(c) of the conversion of any or all of the shares
to be redeemed held by the holder, then the redemption shall not become
effective as to the shares to be converted and the conversion shall become
effective as provided in Section 7(c), whereupon any funds deposited by the
Company, or on its behalf, with a paying agent or segregated and held in trust
by the Company for the redemption of such shares shall (subject to any right of
the holder of such shares to receive the dividend payable thereon as provided in
Section 7 below) immediately upon such conversion be returned to the Company or,
if then held in trust by the Company, shall be discharged from the trust.
(d) No other Permitted Redemptions; No Defaults; Retirement.
(i) Except as expressly provided in paragraphs (a) and (b) of this Section
4 and in Section 5(a), the Company shall have no right to redeem or exchange the
shares of Series A Preferred Stock.
(ii) No redemption, purchase or exchange shall be effected pursuant to
Sections 4 or 5 if the effect of same would be to cause an event of default (or
which, with notice, lapse of time or both would constitute an event of default)
under the
<PAGE>
-6-
terms of any Indebtedness of the Company. For purposes of this statement of
designation, "Indebtedness" of the Company as of any date shall mean and include
all material recourse indebtedness for money borrowed of the Company or
evidenced by notes, bonds, debentures or similar evidences of indebtedness of
the Company.
5. Exchange.
(a) Subject to the restrictions in Section 5(e) below, shares of the Series
A Preferred Stock shall be exchangeable at the option of the Company, in whole
only, at any time, in redemption of and in exchange for the shares of the Series
A Preferred Stock, for the Company's 9% Convertible Debentures (the
"Debentures") in the manner provided in this Section 5. The Debentures will be
subject to the terms and conditions of an indenture (the "Indenture") with an
independent institutional trustee meeting the qualification requirements under
the Trust Indenture Act of 1939, as amended, in customary form with terms and
conditions substantially equivalent to those of the Series A Preferred Stock.
The Debentures shall be convertible into Common Stock at the Conversion Price
(as defined below).
(b) The Debentures will be issued solely in redemption of and in exchange
for shares of the Series A Preferred Stock at the rate of $1,000 principal
amount of Debentures for each share of Series A Preferred Stock on the Debenture
Exchange Date (as defined below).
(c) Not less than 30 nor more than 60 days prior to each date fixed for the
issue of Debentures in redemption of and in exchange for shares of the Series A
Preferred Stock pursuant to this Section 5, a notice shall be given by
first-class mail, postage prepaid, to the holders of record of the shares of
Series A Preferred Stock to be exchanged for Debentures at their respective
addresses as the same shall appear on the books of the transfer agent for the
Series A Preferred Stock, specifying the effective date of the exchange for the
Debentures (the "Debenture Exchange Date") and the place where certificates for
such shares are to be surrendered for Debentures and stating that dividends on
such shares will cease to accrue on the Debenture Exchange Date. Neither failure
to mail such notice, nor any defect therein or in the mailing thereof, to any
particular holder shall affect the sufficiency of the notice or the validity of
the proceedings for redemption and exchange with respect to any other holder.
Any notice mailed in the manner herein provided shall be conclusively presumed
to
<PAGE>
-7-
have been duly given whether or not the holder receives the notice.
(d) If notice of redemption and exchange has been given pursuant to this
Section 5 then (unless the Company shall default in issuing the Debentures in
redemption of and in exchange for shares of the Series A Preferred Stock or
shall fail to pay or set aside accrued and unpaid dividends on shares of the
Series A Preferred Stock as provided in Section 5(e) and notwithstanding that
any certificates for shares of the Series A Preferred Stock have not been
surrendered for exchange), on the Debenture Exchange Date, the holders of such
shares shall cease to be shareholders with respect to the shares and shall have
no interest in or claims against the Company by virtue thereof (except the right
to receive Debentures in exchange therefor and such accrued and unpaid dividends
thereon to the Debenture Exchange Date), shall have no voting, conversion or
other rights with respect to such shares, and such shares shall no longer be
outstanding. Upon the surrender (and endorsement, if required by the Company) of
the certificates for shares of the Series A Preferred Stock in accordance with
such notice, such certificates shall be exchanged for Debentures and such
accrued and unpaid dividends in accordance with this Section 5. If notice of
redemption and exchange has been given pursuant to this Section 5 and any holder
of shares of Series A Preferred Stock to be exchanged for Debentures shall,
prior to the close of business on the Debenture Exchange Date, give written
notice to the Company pursuant to Section 7(c) of the conversion of any or all
of the shares to be redeemed and exchanged held by the holder, then the
redemption and exchange shall not become effective as to the shares to be
converted and the conversion shall become effective as provided in Section 7(c),
whereupon any funds deposited by the Company, or on its behalf, with a paying
agent or segregated and held in trust by the Company for the redemption and
exchange of such shares shall (subject to any right of the holder of such shares
to receive the dividend payable thereon as provided in Section 7 below)
immediately upon such conversion be returned to the Company or, if then held in
trust by the Company, shall be discharged from the trust.
(e) Prior to giving notice of intention to exchange, the Company and the
Trustee shall execute and deliver the Indenture, with such changes therein as
may be required by law, or the rules of any securities exchange on which the
Debentures are to be listed, if any. The Company will cause the Debentures to be
authenticated on or before the first Debenture Exchange Date. Additionally,
prior to giving the first notice of
<PAGE>
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intention to exchange, the Company shall (i) register the Debentures for trading
through The Depository Trust Company, (ii) list the Debentures for inclusion in
the principal trading market in which the shares of the Series A Preferred Stock
were trading, if any, immediately prior to such exchange, and (iii) arrange for
the qualification of the Debentures under applicable securities and blue sky
laws, to the extent necessary under such laws. If on the Debenture exchange Date
the Company has failed to pay or set aside, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of shares of the Series
A Preferred Stock, all dividends accrued and unpaid on the shares of the Series
A Preferred Stock to such Debenture Exchange Date then no shares of the Series A
Preferred Stock shall be redeemed or exchanged for Debentures.
(f) Prior to or upon the consummation of any exchange pursuant to this
Section 5, the holders shall have received an opinion from Company counsel, in
form and substance reasonably satisfactory to the holders, that the Indenture
(i) has been duly authorized, executed and delivered by the Company and (ii)
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms.
(g) The Company agrees to indemnify and hold harmless each holder of
Preferred Stock against any tax liabilities or other tax detriments occasioned
by an exchange of the Series A Preferred Stock for Debentures.
6. Voting Rights.
(a) Each issued and outstanding share of Series A Preferred Stock shall be
entitled to receive notice of each meeting of the shareholders of the Company
and at each such meeting shall be entitled to the number of votes equal to (i)
$500, divided by (ii) the then effective Conversion Price with respect to any
and all matters presented to the shareholders of the Company for their action or
consideration. Except as provided by law or by the provisions of subsections (b)
and (c) below, holders of Series A Preferred Stock shall vote together with the
holders of Common Stock as a single voting group.
(b) (i) Whenever, at any time or times, cash dividends shall be in arrears
in an amount equal to six full consecutive quarterly dividends, the holders of
the outstanding Series A Preferred Stock shall have the exclusive right, voting
separately as a class, to elect one director of the Company at any meeting of
shareholders of the Company called for the pur-
<PAGE>
-9-
pose of electing directors; provided, that if the number of directors on the
Board of Directors shall be increased, such number of directors of the Company
which the holders of Series A Preferred Stock shall have the right to elect
shall be that number of directors (rounded downward, in the case of a
non-integer result, to the then existing integer), and the replacements and any
successors thereto, to the Board of Directors of the Company so that at all
times the number of directors so elected shall be equal to the product obtained
by multiplying (x) the number of directors constituting the Board of Directors
of the Company at such time by (y) 1/7. Upon the vesting of such right of the
holders of the Series A Preferred Stock, any applicable number of directors of
the Company set forth in the Restated Articles of Incorporation or Restated
By-Laws of the Company, as determined pursuant thereto, shall automatically be
increased by one and the vacancy so created shall be filled immediately by vote
of the holders of the outstanding Series A Preferred Stock as hereinabove set
forth. Such right of the holders of the Series A Preferred Stock, voting
separately as a class, to elect one member of the Board of Directors of the
Company as aforesaid shall continue until such time as all dividends accumulated
on the Series A Preferred Stock shall have been paid in full, at which time such
right shall terminate, subject to revesting in the event of each and every
subsequent default of the character above mentioned.
(ii) Upon any termination of the right of the holders of the Series A
Preferred Stock as a class to vote for directors as herein provided, the term of
office of any director then in office elected by the holders of Series A
Preferred Stock voting pursuant to this Section 6 as a class shall terminate
immediately.
(iii) If the office of any director elected by the holders of the Series A
Preferred Stock voting as a class becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office or otherwise, the
holders of the Series A Preferred Stock voting separately as a class may elect a
successor who shall hold office for the unexpired term in respect of which such
vacancy occurred. Whenever the term of office of the director elected by the
holders of the Series A Preferred Stock voting as a class shall end and the
special voting powers vested in the holders of the Series A Preferred Stock as
herein provided shall have expired, the number of directors shall be such a
number as may be provided for in the Restated Articles of Incorporation or
Restated By-Laws of the Company, or determined pursuant thereto, irrespective of
any increase made pursuant to the foregoing provisions.
<PAGE>
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(c) The Company shall not amend, alter or repeal the preferences, special
rights or other powers of the Series A Preferred Stock so as to affect adversely
the Series A Preferred Stock, without the written consent or affirmative vote of
the holders of a least a majority of the then outstanding aggregate number of
shares of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a voting group.
7. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Optional Conversion. Each share of Series A Preferred Stock may be
converted at any time, and from time to time, at or prior to the Maturity
Date, at the option of the holder thereof, in the manner hereinafter
provided, into such number of shares of fully-paid and nonassessable shares
of Common Stock as shall equal (i) the Liquidation Preference per share of
Series A Preferred Stock divided by (ii) the then effective Conversion
Price (as defined below); provided, however, that upon any redemption of
any Series A Preferred Stock or any liquidation of the Company, the right
of conversion, if not sooner exercised, shall terminate at the close of
business on the business day preceding the date fixed for such redemption
or for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock; provided, further, that if the initial
sale and issuance by the Company of the Series A Preferred Stock shall be
subject to the provisions of the HSR Act, no shares of Series A Preferred
Stock may be converted at the option of the holder thereof until the
required approval or waiver of waiting periods under the HSR Act shall have
been obtained.
(b) Conversion Price. The initial conversion price (the "Conversion
Price") shall be equal to $18.20 per share, subject to adjustment as
provided in Section 8.
(c) Conversion Mechanics.
(i) In order to exercise the conversion privilege, the holder of
any Series A Preferred Stock to be converted shall surrender his or
its certificate or certificates therefor to the principal office of
the transfer agent for the Series A Preferred Stock (or if no transfer
agent is at the time appointed, then the Company at its principal
<PAGE>
-11-
office), and shall give written notice to the Company at such office
that the holder elects to convert the Series A Preferred Stock
represented by such certificates, or any number thereof. Such notice
shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, subject to any
restriction on transfer relating to shares of the Series A Preferred
Stock or shares of Common Stock upon conversion thereof. If so
required by the Company, certificates surrendered for conversion shall
be endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Company, duly authorized in
writing. The "Conversion Date" for any such conversion shall be the
date of receipt by the transfer agent (or by the Company if the
Company serves as its own transfer agent) of the certificates and
notice of conversion. As soon as practicable after receipt of such
notice and the surrender of the certificate or certificates for Series
A Preferred Stock as aforesaid, the Company shall cause to be issued
and delivered at such office to such holder, or on his or its written
order, a certificate or certificates for the number of full shares of
Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in paragraph (ii) of this
Section 7(c) in respect of any fraction of a share of Common Stock
otherwise issuable upon such conversion.
(ii) The Company shall not issue fractions of shares of Common
Stock upon conversion of Series A Preferred Stock or scrip in lieu
thereof. If any fraction of a share of Common Stock would, except for
the provisions of this paragraph (ii), be issuable upon conversion of
any Series A Preferred Stock, the Company shall in lieu thereof pay to
the person entitled thereto an amount in cash equal to the current
value of such fraction, calculated to the nearest one-thousandth
(1/1000) of a share, to be computed (1) if the Common Stock is listed
on any national securities exchange on the basis of the last closing
price of the Common Stock on such exchange (or the quoted closing bid
price if there shall have been no sales) on the Conversion Date, or
(2) if the Common Stock shall not be listed, on the basis of the last
reported sale price of the Common Stock as reported by NASDAQ, or its
successor, on the Conversion Date and if there is not such a last
reported sale price, on the basis of the fair market value per share
as determined by the Board of Directors of the Company.
<PAGE>
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(iii) From and after the Initial Issuance Date, the Company shall
at all times when the Series A Preferred Stock shall be outstanding
reserve and keep available out of its authorized but unissued stock,
for the purposes of effecting the conversion of the Series A Preferred
Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. For the purposes of this
statement, "Initial Issuance Date" shall mean October 24, 1997.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices, to vote and to
receive accrued and unpaid dividends, shall forthwith cease and
terminate except only the right of the holder thereof to receive
shares of Common Stock in exchange therefor.
8. Anti-dilution Provisions. The Conversion Price shall be subject to
adjustment from time to time as follows:
(a) Stock Dividends. In case shares of Common Stock are issued after
the Initial Issuance Date as a dividend or other distribution on any class
of capital stock of the Company, the Conversion Price shall be reduced by
multiplying the Conversion Price by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution.
(b) Subdivisions and Combinations. In case outstanding shares of
Common Stock shall be subdivided into a greater number of shares of Common
Stock or combined into a smaller number of shares of Common Stock, the
Conversion Price shall be reduced (in the event of a subdivision) or
increased (in the event of a combination), by multiplying the Conversion
Price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date immediately
preceding the effective date of such subdivision or combination and the
denominator shall be the number of shares of Common Stock outstanding
immediately after such subdivision or combination becomes effective.
<PAGE>
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(c) Extraordinary Dividends, etc. In case the Company distributes, as
dividends or otherwise, to any holders of its capital stock evidences of
its indebtedness or assets (excluding any dividend or distribution which is
permitted by Section 2(b) hereof and excluding regular quarterly cash
dividends on the Common Stock not in excess of $1.64 per share per annum),
the Conversion Price shall be reduced, effective immediately after the
record date for the determination of shareholders entitled to receive such
distribution, by multiplying the Conversion Price by a fraction of which
the numerator shall be (x) the Fair Market Value per share of the Common
Stock less (y) the Fair Market Value of such distribution, and the
denominator shall be the Fair Market Value per share of the Common Stock.
As used in this Section 8, "Fair Market Value" means:
(i) in the case of securities for which a public market exists,
the average, computed over the 30 trading days preceding the date as
of which valuation is required, of (A) each day's closing price
regular way for such securities as reported by the principal national
securities exchange on which such securities are listed, (B) if such
securities are not traded on a national securities exchange, each
day's mean of the closing bid and ask prices for such securities as
reported by the NASDAQ National Market System, (C) if such securities
are not traded over such exchange or System, each day's mean of the
closing bid and ask prices for such securities as reported by NASDAQ,
and (D) if such securities are not traded on any such exchange or
System or reported by NASDAQ, each day's mean of the closing bid and
ask prices as reported by the National Quotation Bureau; and
(ii) in the case of securities for which no public market exists
and in all other cases, as determined in the good faith judgment of
the Board of Directors of the Company (irrespective of the accounting
treatment thereof).
(d) Reorganization, Reclassification, Merger and Consolidation. In
case of any capital reorganization or any reclassification of the capital
stock of the Company (other than a subdivision or combination of its
outstanding shares of Common Stock) or in case of the consolidation or
merger of the Company with another corporation or the sale of all or
substantially all of the assets of the Company, each share of Series A
Preferred Stock shall
<PAGE>
-14-
thereafter be convertible into the number of shares of stock or other
securities or property of the Company, or of the successor corporation
resulting from such consolidation or merger, as the case may be, to which
the Common Stock deliverable upon conversion of such share of Series A
Preferred Stock would have been entitled upon such capital reorganization,
reclassification of capital stock, consolidation or merger or sale of
assets; and, in any such case, appropriate adjustments (as determined by
the Board of Directors of the Company) shall be made in the application of
the provisions herein set forth with respect to rights and interests
thereafter of the holders of the Series A Preferred Stock, to the end that
the provisions set forth herein (including the specified changes in and
other adjustments of the Conversion Price) shall thereafter be applicable,
as near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the conversion of the Series A Preferred Stock.
(e) Notice of Adjustments. Whenever the Conversion Price is adjusted
as provided in this Section 8, the Company shall forthwith file with the
transfer agent for the Common Stock a statement signed by the chief
financial officer for the Company stating that the Conversion Price shall
be the price as adjusted pursuant to Section 8. Such statement shall
include a statement of the then-current total amount of Fully Diluted
Common Shares and the total amount of Fully Diluted Common Shares issued
after the Closing Date. Whenever the Conversion Price is so adjusted, the
Company shall cause written notice thereof to be mailed to the holders of
record of the outstanding Series A Preferred Stock within 30 days of such
adjustment.
(f) Notice of Events. In case:
(i) the Company shall declare any dividend payable in stock upon
its Common Stock or make any distribution (other than cash dividends
or distributions) to the holders of its Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or any other rights;
(iii) of any capital reorganization or reclassification of the
capital stock of the Company (other than a
<PAGE>
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subdivision or combination of its outstanding shares of Common Stock),
or of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required or
of the sale of all or substantially all of the assets of the Company;
or
(iv) of the Liquidation or voluntary or involuntary dissolution
of the Company,
then, and in any one of said cases, the Company shall cause at least
ten days' prior notice to be mailed to the holders of record of the
outstanding Series A Preferred Stock as of the date on which the books
of the Company shall close, or a record be taken for such stock
dividend, distribution or subscription rights or the date on which
such reorganization, reclassification, consolidation, merger, sale,
Liquidation or dissolution is expected to become effective. Such
notice shall also specify the date as of which holders of Common Stock
of record shall participate in said dividend, distribution or
subscription rights, or the date as of which it is expected that
holders of capital stock shall be entitled to exchange their shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, Liquidation or
dissolution.
9. Special Right of Redemption Upon Change in Control.
(a) If a Change in Control (as defined below) should occur with respect to
the Company, each holder of shares of the Series A Preferred Stock shall have
the right, at the holder's option, for a period of 45 days after the mailing of
a notice by the Company that a Change in Control has occurred, to require the
Company to repurchase all, or any portion, of such holder's shares of the Series
A Preferred Stock for a price per share equal to 101% of the Liquidation
Preference thereof (the "Repurchase Price"), together with any accrued and
unpaid dividends on such shares.
(b) If a Change in Control shall occur, then, as soon as practicable and in
any event within 30 days after the occurrence of such Change in Control, the
Company shall mail to each registered holder of a share of Series A Preferred
Stock a notice setting forth details regarding the special right of the holders
to have their shares of Series A Preferred Stock repurchased as a result of such
Change in Control (the "Special Right Notice"). A holder of a share of Series A
Preferred
<PAGE>
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Stock must exercise such repurchase right within the 45 day period after the
mailing of the Special Right Notice by the Company or such special right shall
expire. The repurchase date for shares so repurchased shall be the 45th day
after the mailing of the Special Right Notice. Exercise of such repurchase right
shall be irrevocable and no dividend on the shares of Series A Preferred Stock
tendered for repurchase shall accrue from and after the repurchase date.
(c) The Special Right Notice shall state: (i) the event constituting the
Change in Control, (ii) the last date upon which holders may submit shares of
Series A Preferred Stock for repurchase, (iii) the Repurchase Price, (iv) the
Conversion Price then in effect under Section 7 and the continuing conversion
rights, if any, under Section 7, (v) the name and address of any paying agent
and conversion agent, (vi) that exercise of such conversion right shall be
irrevocable and no dividends on shares of Series A Preferred Stock tendered for
conversion shall accrue from and after the conversion date and (vii) that the
consideration to be received shall be delivered within five business days after
the last date upon which holders may submit Series A Preferred Stock for
conversion.
(d) As used herein, a "Change in Control" means (i) the acquisition by any
person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this
purpose, Daniel R. Baty or any person or entity controlled by Daniel R. Baty) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of securities that would entitle such person, entity or group to
appoint or elect a majority of the Board of Directors of the Company; or (ii)
individuals, who, as of the Initial Issuance Date, constitute the Board (as of
the date hereof the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the Initial Issuance Date whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be, for
purposes of this definition, considered as though such person were a member of
the Incumbent Board; or (iii) the sale of all or substantially all of the assets
of the Company which does not also result in the continued operation or
management of such assets by the Company.
10. No Reissuance of Series A Preferred Stock. All shares of Series A
Preferred Stock acquired by the Company by reason of redemption, exchange,
conversion, purchase or other-
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wise shall be retired as Series A Preferred Stock (and the number of authorized
shares of Series A Preferred Stock shall be decreased to reflect such
retirement) and the retired shares shall resume the status which they had prior
to the adoption of this resolution fixing the number of shares of Series A
Preferred Stock.
<PAGE>
Exhibit B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of October 24,
1997, is made and entered into by and among Emeritus Corporation, a Washington
corporation (the "Company"), and the holders (collectively, together with their
assigns, the "Holders") of the Preferred Stock (as defined herein).
WHEREAS, concurrently with the issuance of the Preferred Stock the Company
is entering into this Agreement to define the rights which exist among the
Holders, on the one hand, and the Company, on the other, with respect to the
Registrable Securities (as defined herein);
NOW, THEREFORE, in consideration of the mutual premises, agreements and
covenants hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
Definitions
For purposes of this Agreement, the following terms shall have the
following respective meanings (each such meaning to be equally applicable to the
singular and plural forms thereof):
"Agreement" means this Registration Rights Agreement.
"Commission" shall mean the Securities and Exchange Commission, and any
other similar or successor agency of the federal government at the time
administering the Securities Act or the Securities Exchange Act.
"Common Stock" means the Company's voting Common Stock, par value $.0001
per share.
"Company" has the meaning assigned such term in the preamble hereto.
"Convertible Debentures" means the Company's 9% Convertible Debentures due
2004.
"Holders" has the meaning assigned such term in the preamble hereto.
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"Holders of Registrable Securities" shall mean a person who owns
Registrable Securities or has the right to acquire such Registrable Securities,
whether or not such acquisition has actually been effected and disregarding any
legal restrictions upon the exercise of such right.
"NASD" means the National Association of Securities Dealers, Inc.
"Preferred Stock" means the Company's Series A Convertible Exchangeable
Redeemable Preferred Stock, $.0001 par value per share, issued to the Holders
pursuant to a Preferred Stock Purchase Agreement, dated as of the date hereof,
between the Company, as seller, and the Holders, as purchaser.
"Prospectus" means the prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement with respect to the
terms of the offering, registering for sale any of the Registrable Securities
and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference in such
Prospectus.
"Registrable Securities" means each share of Preferred Stock or if the
Preferred Stock has been exchanged for Convertible Debentures, each Convertible
Debenture, each share of Common Stock issuable upon conversion of such Preferred
Stock or Convertible Debenture and, if such Preferred Stock or Convertible
Debenture has been converted, each share of Common Stock issued in connection
with such conversion; provided, that any security's status as a Registrable
Security shall cease when the registration rights with respect to such security
shall have terminated pursuant to Section 2.6.
"Registration Statement" means any registration statement of the Company
which registers for sale any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"Requisite Holders" means the holders, at any time, of the outstanding
Registrable Securities representing more than 50% of the aggregate of
Registrable Securities at the time outstanding.
<PAGE>
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"Rule 144" means Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
ARTICLE II
Registration Rights
SECTION 2.1 Registration on Demand.
2.1.1 Demand. At any time following October 24, 1998, upon the written
request (each, a "Demand"; collectively, "Demands") of the Requisite Holders
(the "Demand Holders") that the Company effect the registration under the
Securities Act of the number of Registrable Securities specified by the Demand
Holders, the Company shall, subject to the provisions hereof, use its best
efforts to effect, as soon as practicable and in any event within 120 days after
the Demand is received from the Demand Holders, the registration under the
Securities Act of the Registrable Securities which the Company has been so
requested to register by the Demand Holders; provided, however, that no more
than two (2) Demands may be made pursuant to this Section 2.1.1.
2.1.2 Shelf Registration. At any time that the Company is eligible to use a
short-form registration statement for registering securities for sale to the
public at large, the Demand Holders may, at their option, request (the "Shelf
Demand") that any registration statement effected pursuant to a Demand pursuant
to Section to 2.1.1 be effected on a delayed or continuous basis, pursuant to
Rule 415 under the Securities Act (the "Shelf Registration"). The Company agrees
to keep effective such registration statement (the "Shelf Registration
Statement") until the earlier of (i) such date as of which all the Registrable
Securities under the Shelf Registration Statement have been disposed of in the
manner described in such reg-
<PAGE>
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istration statement, and (ii) one year after the date on which such Shelf
Registration Statement is declared effective.
2.1.3 Registration Statement Form. Registrations under this Section 2.1
shall be on such appropriate registration form of the Commission as shall be
selected by the Company. The Company shall include in any such registration
statement all information which, in the opinion of counsel to the Company, is
required to be included.
2.1.4 Effective Registration Statement. A registration requested pursuant
to this Section 2.1 shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective, (ii) if after
it has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to the Holders and has not
thereafter become effective, or (iii) if the conditions to closing specified in
the underwriting agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason of a failure on
the part of the Holders or (iv) if a Shelf Registration Statement, if such
registration statement has not been kept effective until the earlier of (i) such
date as of which all of the Registrable Securities under such Shelf Registration
Statement have been disposed of in the manner described in such registration
statement and (ii) one year after the date on which such Shelf Registration
Statement is declared effective.
2.1.5 Limitations on Registration on Demand, Shelf Registrations. The
Company shall not be required to prepare and file a registration statement
pursuant to this Section 2.1 which would become effective within 120 days
following the effective date of a registration statement (other than pursuant to
registrations on Form S-4 or Form S-8 or any successor form or other forms not
available for registering securities for sale to the public at large) filed by
the Company with the Commission pertaining to an underwritten public offering of
convertible debt securities or equity securities for cash for the account of the
Company or another holder of securities of the Company. Notwithstanding anything
in this Section 2.1 to the contrary, in no event shall the Company be required
to effect in the aggregate, more than two registrations pursuant to this Section
2.1.
2.1.6 Holders' Ability to Withdraw Registration Statement. The Holders of a
majority of the Registrable Secu-
<PAGE>
-5-
rities to be included in such registration shall have the right to request that
the Company not have a registration statement filed pursuant to a Demand
declared effective. If the Demand Holders elect to pay or reimburse the Company
for the Company's out-of-pocket expenses incurred in connection with such
registration, such withdrawn registration statement shall not be counted for
purposes of the requests for registration to which such Demanding Holder is
entitled pursuant to Section 2.1.5 hereof.
2.1.7 Selection of Underwriter. If a registration under this Section 2.1 is
an underwritten offering, the Holders of a majority of the Registrable
Securities to be included in such registration shall select a managing
underwriter or underwriters of recognized national standing reasonably
acceptable to the Company to administer the offering.
2.1.8 Registration of Other Securities. A registration statement filed
pursuant to the request of the Demand Holders may, subject to the provisions of
Section 2.5 hereof, include (i) Registrable Securities of Holders not making a
demand pursuant to this Section 2.1 and (ii) other securities of the Company
with respect to which registration rights have been granted and may include
securities of the Company being sold for the account of the Company.
2.1.9 Suspension. The Company may delay, suspend or withdraw the
registration of the Registrable Securities required pursuant to this Section 2.1
or the preparation or furnishing of a supplemental or amended prospectus
pursuant to Section 2.3(i) for a period not exceeding 90 days if the Company
shall in good faith determine that any such registration would require the
Company to include disclosure that would reasonably be expected to have a
detrimental effect on any proposal, negotiations or plan by the Company or any
of its subsidiaries to engage in any acquisition or disposition of assets or any
merger, consolidation, tender offer, reorganization or similar transaction, or
any other material corporate event contemplated by the Company. In addition, the
Company shall not be required to register Registrable Securities on a date on
which, under the general rules and regulations of the Commission as advised by
counsel, the inclusion therein, by incorporation or by reference, of financial
statements of the Company contained in the annual or quarterly report of the
Company most recently filed with the Commission would not be permitted, provided
that this exception shall not permit delay or suspension of registration beyond
the filing of the next required annual or quarterly filing under the Securities
Exchange Act.
<PAGE>
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SECTION 2.2 Incidental Registration. If the Company, at any time or any one
or more occasions after the date of this Agreement, proposes to register (other
than pursuant to Section 2.1) any of its equity securities under the Securities
Act for sale to the public, whether for its own account or for the account of
other security holders or both (other than pursuant to registrations on Form S-4
or Form S-8 or any successor form or other forms not available for registering
securities for sale to the public at large), the Company shall give not less
than 15 days' nor more than 90 days' prior written notice to each Holder of
Registrable Securities of its intention to do so. Upon the written request of
any Holder of Registrable Securities given within 15 days after receipt of such
notice from the Company, the Company will use its best efforts to cause the
Registrable Securities requested to be registered to be so registered under the
Securities Act. A request pursuant to this Section 2.2 shall state the number of
Registrable Securities requested to be registered and the intended method of
distribution thereof. In connection with any registration subject to this
Section 2.2, the Holders shall enter into such underwriting, lock-up and other
agreements, and shall execute and complete such questionnaires and other
documents, as are reasonably requested by the representative of the
underwriters. The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 2.2 prior to the effectiveness
of such registration whether or not any Holder has elected to include any
securities in such registration. Notwithstanding any other provision of this
Agreement, if the representative of the underwriters advises the Company in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 2.5 hereof.
No registration effected under this Section 2.2 shall relieve the Company
of its obligation to effect the registration required under Section 2.1.
SECTION 2.3 Registration Procedures. In connection with the registration of
any Registrable Securities in accordance with this Section 2, the Company shall
effect such registrations to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Commission within the time limits
prescribed herein a Registration Statement
<PAGE>
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with respect to such securities and use its best efforts to cause such
Registration Statement to become effective and remain effective as provided
herein;
(b) prepare and file with the Commission such amendments and
post-effective amendments to each Registration Statement as may be
necessary and use its best efforts to keep such Registration Statement
continuously effective; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act, the
Securities Exchange Act and the rules and regulations of the Commission
promulgated thereunder applicable to it with respect to the disposition of
all securities covered by such Registration Statement as so amended or in
such Prospectus as so supplemented; the Company shall not be deemed to have
used its best efforts to keep a registration statement effective during a
period if it voluntarily takes any action that results in participating
Holders not being able to sell such Registrable Securities during such
period, unless such action (i) is required under applicable law or (ii) is
determined in good faith by the Board of Directors of the Company to be in
the Company's best interest;
(c) notify the Holders of Registrable Securities and underwriters, if
any, promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of the issuance (or, to the Company's best
knowledge, the threat or contemplation) by the Commission of any stop order
suspending the effectiveness of such Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, and (iii) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement
or any of the Registrable Securities for offer or sale in any jurisdiction,
or the initiation or threatening of any proceeding for such purpose;
(d) use every reasonable effort to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending
<PAGE>
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the use of a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, and, if any such order is issued, to obtain the withdrawal of
any such order at the earliest possible moment;
(e) furnish to each seller and to each duly authorized broker or
underwriter of each seller such number of authorized copies of a
Prospectus, including copies of a preliminary Prospectus, in conformity
with the requirements of the Securities Act, and such other customary
documents as such seller, broker or underwriter may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(f) use its best efforts to register or qualify (and to keep each such
registration and qualification effective, including through new filings,
renewals or amendments, during the period such registration statement is
required to be kept effective) the securities covered by such Registration
Statement under such securities or blue sky laws of such jurisdictions as
each seller shall reasonably request, and do any and all other reasonable
acts and things which may be necessary under such securities or blue sky
laws to enable such seller to consummate the public sale or other
disposition in such jurisdictions of the Registrable Securities to be sold
by such seller, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation, or to consent
to the jurisdiction of any court or subject itself to suit in any
jurisdiction wherein it is not qualified;
(g) before filing the Registration Statement or Prospectus or
amendments or supplements thereto, furnish to counsel for the Holders of
Registrable Securities included in such Registration Statement copies of
all such documents proposed to be filed, all of which shall be subject to
the review and comment of such counsel in the exercise of their reasonable
judgment;
(h) use its best efforts to cause such Registrable Securities covered
by such Registration Statement to be registered with or approved by such
other governmental agencies or authorities exercising jurisdiction over the
Company as may be necessary to enable the seller or sell-
<PAGE>
-9-
ers thereof to consummate the disposition of such Registrable Securities;
(i) notify each seller of any such Registrable Securities covered by
such Registration Statement, at any time when a Prospectus relating thereto
is required to be delivered under the Securities Act, of the Company's
becoming aware that the Prospectus included in such Registration Statement,
as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, and, at the written request of any such
seller, promptly prepare and furnish to such seller and each underwriter a
reasonable number of copies of a Prospectus supplemented or amended
(whereupon all previous versions of the Prospectus shall not be used by
such seller or underwriter and shall be promptly returned to the Company or
destroyed) so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(j) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon
as reasonably practicable, an earnings statement covering the period of at
least twelve consecutive months beginning with the first day of the
Company's first calendar quarter after the effective date of the
Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) use its best efforts to cause all such Registrable Securities
covered by such Registration Statement to be listed or quoted on the
principal securities exchange (including NASDAQ) on which similar
securities issued by the Company are then listed or quoted, if the listing
or quoting of such Registrable Securities is then permitted under the rules
of such exchange;
(l) provide a transfer agent, registrar and/or trustee, as applicable,
for all such Registrable Securities
<PAGE>
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covered by such Registration Statement not later than the effective date of
such Registration Statement;
(m) cooperate with the selling holders of Registrable Securities and
the underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends; and enable such
Registrable Securities to be in such denominations and registered in such
names as the underwriters, if any, or holders may reasonably request at
least two business days prior to any sale of Registrable Securities in a
firm commitment underwritten public offering, or at least ten business days
prior to any other such sale;
(n) enter into such reasonable and customary agreements (including an
underwriting agreement in customary form) and take such other reasonable
and customary actions as the Requisite Holders shall reasonably request in
order to expedite or facilitate the registration and disposition of such
Registrable Securities;
(o) provide copies of any opinions from the Company's counsel and
"cold comfort" letters from the Company's independent public accountants
delivered to the underwriters, if any;
(p) upon execution and delivery of such confidentiality agreements as
the Company shall reasonably request (which agreement shall not restrict
any such person's obligations under applicable securities laws), make
available for inspection by any seller of such Registrable Securities
covered by such Registration Statement, by any underwriter participating in
any disposition to be effected pursuant to such Registration Statement and
by any attorney, accountant or other agent retained by any such seller or
any such underwriter, pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement, all as necessary to conduct a
reasonable investigation within the meaning of Section 11 of the Securities
Act; and
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of
<PAGE>
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the Company, then such Holder shall have the right to require (i) the insertion
therein of language, in form and substance satisfactory to such Holder, to the
effect that the holding by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such Holder by name or otherwise is not in
the judgment of the Company, as advised by counsel, required by the Securities
Act or any similar federal statute or any state "blue sky" or securities law
then in force, the deletion of the reference to such Holder.
SECTION 2.4 Expenses. All expenses incurred in effecting the registrations
(whether or not such registrations are consummated) provided for in this Article
II, including without limitation all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, expenses of any
audits incident to or required by any such registration (including the costs of
any comfort letters) and expenses of complying with the securities or blue sky
laws of any jurisdictions pursuant to Subsection 2.3(f) hereof, the costs and
expenses associated with the filing required to be made by the NASD , transfer
taxes, fees of transfer agents, registrars and trustees, costs of insurance (but
excluding underwriting discounts and commissions to the extent they relate to
Registrable Securities), duplicating fees, delivery expenses, expenses incurred
with the listing of the securities on any securities exchange, shall be paid by
the Company; provided, however, that such expenses shall be paid by the Company
with respect to only one (1) of the two (2) registrations provided for in
Section 2.1.1 and shall otherwise be paid by the Holders of Registrable
Securities whose Registrable Securities are included, pro rata in proportion to
such shares included.
SECTION 2.5 Marketing Restrictions. If (i) any Holder of Registrable
Securities requests registration of Registrable Securities under Section 2.1 or
2.2, (ii) the offering proposed to be made is to be an underwritten public
offering and (iii) the managing underwriters of such public offering furnish a
written opinion that the total amount of securities to be included in such
offering would exceed the maximum amount of securities (the "Maximum Amount")
(as specified in such opinion) which can be marketed at a price reasonably
related to the then current market value of such securities and without
materially and adversely affecting such offering, then the rights of the
Company, the Holders of Registrable Securities
<PAGE>
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and the holders of other securities having the right to include such securities
in such registration to participate in such offering shall be as follows:
If such registration shall have been proposed by the Company, (i) the
Company shall be entitled to participate in such registration first; and
(ii) then Holders of Registrable Securities and other holders of securities
of the Company shall be entitled to participate in such registration (pro
rata based on the number of shares of Common Stock held by each Holder and
other holders of securities (on an as converted basis) and in accordance
with other relative priorities, if any, as shall exist among them). If such
registration shall have been requested by the Demand Holders of Registrable
Securities pursuant to Section 2.1 hereof, (i) the Holders of Registrable
Securities shall be entitled to participate in such registration (pro rata
based on the number of Registrable Securities held by each) first; and (ii)
then the Company and other security holders of the Company entitled to
participate will be entitled to participate in such registration (with the
holders of such securities being entitled to participate in accordance with
the relative priorities, if any, as shall exist among them), in each case
with further pro rata allocations to the extent any such person has
requested registration of fewer securities than such person is entitled to
have registered so that the number of securities to be included in such
registration will not exceed the Maximum Amount. If such registration shall
have been requested by the holders of other securities pursuant to a right
granted by the Company to request such registration, (i) the holders
requesting such registration shall be entitled to participate in such
registration (with such holders being entitled to participate in accordance
with the relative priorities, if any, as shall exist among them) first; and
(ii) then the Holders of Registrable Securities, the Company and other
holders of securities of the Company shall be entitled to participate in
such registration (pro rata based on the number of shares of Common Stock
held by each Holder, the Company and other holders of securities (on an as
converted basis) and in accordance with the other relative priorities, if
any, as shall exist among them), in each case with further pro rata
allocations to the extent any such person has requested registration of
fewer securities than such person is entitled to have registered so that
the number of securities to be included in such registration will not
exceed the Maximum Amount;
<PAGE>
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and no securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition in a
transaction which would require registration under the Securities Act (but
excluding any issuance of shares pursuant to registrations on Form S-4 or Form
S-8 or any successor form or other forms not available for registering capital
stock for sale to the public at large) until the expiration of 90 days after the
effective date of the Registration Statement in which Registrable Securities
were included pursuant to Section 2.2 or such shorter period as may be
acceptable to the Company and the Holders of a majority of the Registrable
Securities who may be participating in such offering.
SECTION 2.6 Termination of Rights. Notwithstanding the foregoing provisions
of this Article II, the rights to registration shall terminate as to any
particular Registrable Securities when (a) a Registration Statement covering
such Registrable Securities has been declared effective and such Registrable
Securities have been disposed of in accordance with such effective Registration
Statement, (b) written opinion(s), to the effect that such Registrable
Securities may be sold without registration under the Securities Act or
applicable state law and without restriction as to the volume and timing of such
sale, shall have been received from counsel for the Company reasonably
acceptable to the Holders of a majority of such Registrable Securities, or (c)
such Registrable Securities have been sold through a broker, dealer or
underwriter in a public distribution or a public securities transaction in which
the transferee receives a certificate without a restrictive legend.
SECTION 2.7 Rule 144. The Company shall file the reports required to be
filed by it under the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder (or, if the Company is not required
to file such reports, it will, upon the written request of any Holder of
Registrable Securities as soon as practicable, make publicly available other
information so long as such information is necessary to permit sales under Rule
144), and will take such further actions as any Holder of Registrable Securities
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemption provided by Rule 144. Upon
the request of any Holder of Registrable Securities, the Company shall deliver
to such Holder a written statement as to whether it has complied with such
requirements.
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SECTION 2.8 Indemnification. (a) In the event of any registration of any
Registrable Securities under the Securities Act pursuant to this Agreement, the
Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, the seller of any Registrable Securities covered by
such Registration Statement, its directors and officers or general and limited
partners (and the directors and officers thereof) (each, a "Person"), each
person who participates as an underwriter or qualified independent
underwriter/pricer ("independent underwriter"), if any, in the offering or sale
of such securities, each officer, director or partner of such underwriter or
independent underwriter, and each other Person, if any, who controls such seller
or any such underwriter within the meaning of the Securities Act, against any
and all losses, claims, damages or liabilities, joint or several, and expenses
(including fees of counsel and any amounts paid in any settlement approved by
the Company (which such approval shall not be unreasonably withheld or delayed))
to which such seller, any such director or officer or general or limited partner
or any such underwriter or independent underwriter, such officer, director or
partner of such underwriter or independent underwriter or controlling person may
become subject under the Securities Act, common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof), or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement under which such securities were
registered under the Securities Act or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary, final or summary
Prospectus (together with the documents incorporated by reference or filed with
the Commission) and any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (iii) any
violation by the Company of any federal or state rule or regulation applicable
to the Company and relating to action required of or inaction by the Company in
connection with any such registration, and the Company will reimburse as
incurred such seller and each such director, officer, general or limited
partner, underwriter, independent underwriter, director, or officer or partner
of such underwriter or independent underwriter and controlling person for any
legal or any other expenses incurred by any of them in connection
<PAGE>
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with investigating or defending any such loss, claim, liability, action or
proceeding; provided, that the Company shall not be liable to any such seller or
any such director, officer, general or limited partner, underwriter, independent
underwriter, director or officer or partner of such underwriter or independent
underwriter or controlling person in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding, whether commenced or
threatened, in respect thereof) or expense arises out of or is based upon (a)
any untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement or amendment thereof or supplement thereto
or in any such preliminary, final or summary Prospectus in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of any such seller or any such director, officer, general or limited partner,
underwriter, independent underwriter, director or officer or partner of such
underwriter or independent underwriter or controlling person, expressly for use
in the preparation thereof or (b) the failure of any such seller or any such
director, officer, general or limited partner, underwriter, independent
underwriter or controlling person, to comply with any legal requirement
applicable to him to deliver a copy of a Prospectus or any supplements or
amendments thereto after the Company has made such documents available to such
Persons. Such indemnity and reimbursement of expenses shall remain in full force
and effect following the transfer of such securities by such seller.
(b) The Company, as a condition to including any Registrable Securities in
any Registration Statement filed in accordance with this Agreement, shall have
received an undertaking reasonably satisfactory to it from the prospective
seller of such Registrable Securities and any underwriter or independent
underwriter, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in paragraph (a) of this Section 2.8) the Company and its
directors and officers and all other prospective sellers and their directors,
officers, general and limited partners and respective controlling Persons
(within the meaning of the Securities Act) with respect to any statement or
alleged statement in or omission or alleged omission from such Registration
Statement, any preliminary, final or summary Prospectus contained therein, or
any amendment or supplement thereto, if such statement or alleged statement or
omission or information has been furnished in writing to the Company or its
representative by or on behalf of such seller or underwriter expressly for use
in the preparation of such Registration Statement, preliminary, final or summary
Prospectus or amendment or supplement; provided, however,
<PAGE>
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that the aggregate amount which any such seller or prospective seller shall be
required to pay pursuant to such undertaking shall be limited to the amount of
the net proceeds received by such Person upon the sale of the Registrable
Securities pursuant to the Registration Statement giving rise to such claim.
Such indemnity shall remain in full force and effect following the transfer of
such securities by such seller.
(c) As soon as possible after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Section 2.8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 2.8, except to the extent that
the indemnifying party is actually and materially prejudiced by such failure to
give notice. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to such indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 2.8 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof unless the indemnifying party has failed to
assume the defense of such claim or to employ counsel reasonably satisfactory to
such indemnified party; provided that the indemnified parties shall have the
right to employ one counsel (in each case together with appropriate local
counsel) (such counsel to be selected by the Holders of a majority of the
Registrable Securities included in such registration) to represent such
indemnified parties if, in such indemnified parties' reasonable judgment, a
conflict of interest between the indemnified parties and the indemnifying
parties exists or may exist in respect of such claim, and in that event the fees
and expenses of such separate counsel shall be paid as incurred by the
indemnifying party. No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimants or plaintiffs to such indemnified party of
an unconditional release from all liability in respect to
<PAGE>
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such claim or litigation. No indemnifying party will be liable for any
settlement effected without its prior written consent, which consent will not be
unreasonably withheld or delayed.
(d) Indemnification similar to that specified in the preceding paragraphs
of this Section 2.8 (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any state securities and
"blue sky" laws.
(e) If the indemnification provided for in this Section 2.8 is unavailable
or insufficient to hold harmless an indemnified party under Section 2.8(a) or
(b) of this Agreement, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 2.8(a) or (b) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and the indemnified party on the other hand in connection
with statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or other omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this Section 2.8(e) were to be
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the first
sentence of this Section 2.8(e). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 2.8(e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim (which shall be limited as
provided in Section 2.8(c) if the indemnifying party has assumed the defense of
any such action in accordance with the provisions thereof) which is the subject
of this Section 2.8(e). No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
Section 2.8(e)
<PAGE>
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of notice of the commencement of any action against such party in respect of
which a claim for contribution may be made against an indemnifying party under
this Section 2.8(e), such indemnified party shall notify the indemnifying party
in writing of the commencement thereof if the notice specified in Section 2.8(c)
has not been given with respect to such action; provided that the omission so to
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise under this
Section 2.8(e), except to the extent that the indemnifying party is actually and
materially prejudiced by such failure to give notice. Notwithstanding anything
in this Section 2.8(e) to the contrary, no indemnifying party (other than the
Company) shall be required pursuant to this Section 2.8(e) to contribute any
amount in excess of the net proceeds received by such indemnifying party from
the sale of Registrable Securities in the offering to which the losses, claims,
damages or liabilities of the indemnified parties relate.
(f) The provisions of this Section 2.8 shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract and shall remain in full force and effect following
the transfer of the Registrable Securities by any such party.
SECTION 2.9 Agreements of Holders. (a) Each Holder of Registrable
Securities shall advise the Company of the dates on which any disposition of
Registrable Securities hereunder is expected to commence and terminate, the
number of Registrable Securities expected to be sold, the method of disposition,
and such other information as the Company may reasonably request in order to
supplement the Prospectus in accordance with the rules and regulations of the
Commission.
(b) Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of a notice from the Company under
Section 2.3(i) of the Company's becoming aware that the Prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, such Holder shall not dispose of,
sell or offer for sale Registrable Securities under the Registration Statement
until such Holder receives (i) copies of the supplemented or amended Prospectus
or until counsel for the Company shall have determined that such disclosure is
not required due to subsequent events, (ii) notice in
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writing (the "Advice") from the Company that the use of the Prospectus may be
resumed, and (iii) copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus.
(c) If so directed by the Company in connection with a notice under Section
2.3(i), each Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Registrable Securities that was current immediately
prior to the time of receipt of such notice. In the event the Company shall give
any such notice, the time period regarding the effectiveness of the Registration
Statement set forth in this Article II shall be extended by the number of days
during the period from and including the date of the giving of such notice to
and including the date when each selling Holder covered by the Registration
Statement shall have received the copies of the supplemented or amended
Prospectus, the Advice and any additional or supplemental filings that are
incorporated by reference in the Prospectus.
ARTICLE III
Changes in Registrable Securities
If, and as often as, there is any change in the Registrable Securities by
way of a combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the Registrable
Securities as so changed.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Holders of the Registrable
Securities as of the date of this Agreement as follows:
(a) Due Authorization. The execution, delivery and performance of this
Agreement by the Company has been duly authorized by all requisite action.
(b) Binding Obligation. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company.
<PAGE>
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(c) No Violation. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated herein, by
the Company does not violate any provision of law, any order of any court
or other agency of government, any organizational document of the Company
or any provision of any material indenture, agreement or other instrument
to which the Company or any of its properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or
other instrument or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Company which violation, conflict, breach or default or
lien, charge, restriction or encumbrance would have a material adverse
effect on the business, condition (financial or otherwise) of the Company
taken as a whole.
(d) Government Action. No action has been taken and no statute, rule
or regulation or order has been enacted, no injunction, restraining order
or order of any nature has been issued by a federal or state court of
competent jurisdiction and no action, suit or proceeding is pending against
or affecting or threatened against, the Company before any court or
arbitrator or any governmental body, agency or official which, if adversely
determined, would in any manner draw into question the validity of this
Agreement. Other than filings required with the Commission and under state
securities laws, no action or approval by, or filing or registration with,
any court or governmental agency or body is required for the consummation
of the transactions contemplated by this Agreement by the Company.
ARTICLE V
Benefits of Agreement
The obligations of the Company under this Agreement shall inure to the
benefit of, and be enforceable by, the initial Holders and their successors and
assigns without any further action on the part of any party hereto.
<PAGE>
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ARTICLE VI
Miscellaneous
SECTION 6.1 Notices. All notices, requests, consents and other
communications provided for herein shall be in writing and shall be effective
upon delivery in person, faxed or telecopied, or mailed by certified or
registered mail, return receipt requested, postage pre-paid, addressed as
follows:
(i) if to the Company, 3131 Elliot Avenue, Suite 500, Seattle,
Washington 98121, Attention: Kelly J. Price; with a copy to Perkins & Coie,
1201 Third Avenue, Seattle, Washington 98101, Attention: Michael E.
Stansbury, Esq.
(ii) if to an initial Holder of Registrable Securities, at such
address as may have been furnished to the Company in writing by such
Holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Registrable Securities) or
to the Holders of Registrable Securities (in the case of the Company) in
accordance with the provisions of this paragraph.
SECTION 6.2 Waivers; Amendments. No failure or delay of any Holder of
Registrable Securities or the Company in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of such Holder
and the Company are cumulative and not exclusive of any rights or remedies which
it would otherwise have. The provisions of this Agreement may be amended,
modified or waived with (and only with) the written consent of the Company and a
majority of the Holders of Registrable Securities outstanding (exclusive of
Registrable Securities then owned by the Company or any subsidiary thereof). No
notice or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
SECTION 6.3 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York without regard to
principles of conflicts of law.
<PAGE>
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SECTION 6.4 Survival of Agreements; Representations and Warranties, etc.
All warranties, representations and covenants made by the Company herein or in
any certificate or other instrument delivered by it or on its behalf in
connection with this Agreement shall be considered to have been relied upon by
the Holders of Registrable Securities and shall continue in full force and
effect so long as this Agreement is in effect regardless of any investigation
made by such Holders. All statements in any such certificate or other instrument
shall constitute representations and warranties hereunder.
SECTION 6.5 Covenants to Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Agreement contained by or on
behalf of the parties hereto shall bind their successors and assigns, whether so
expressed or not.
SECTION 6.6 Severability. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 6.7 Section Headings. The section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of or be taken into consideration in interpreting this
Agreement.
SECTION 6.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.9 Termination. The obligations of the Company to register the
Registrable Securities hereunder shall terminate in accordance with the terms of
this Agreement.
SECTION 6.10 Complete Agreement. This document and the documents referred
to herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way,
and any other agreements or understandings
<PAGE>
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as to securities registration or similar rights among the parties hereto are
hereby terminated.
SECTION 6.11 No More Favorable Agreements. The Company has not previously,
and will not hereafter, enter into any agreement with respect to its securities
with any person which grants such person rights that are, taken as a whole, more
favorable than the rights granted to the Holders in this Agreement.
SECTION 6.12 Submission to Jurisdiction; Venue. (a) Any legal action or
proceeding with respect to this Agreement may be brought in the courts of the
State of New York or of the United States for the Southern District of New York,
and, by execution and delivery of this Agreement, the Company hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts. The
Company further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to CT Corporation
Systems at its address at 1633 Broadway, New York, New York 10019, such service
to become effective 30 days after such mailing. Nothing herein shall affect the
right of any Holder to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Company in any other
jurisdiction.
(b) The Company hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first set forth above.
EMERITUS CORPORATION
By:/s/ Kelly J. Price
------------------------
Name: Kelly J. Price
Title: Vice President of Finance,
Chief Financial Officer and
Secretary
HOLDERS:
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ David Hamamoto
------------------------------
Name: David Hamamoto
Title: Authorized Signatory
<PAGE>
Exhibit C
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of October 24, 1997, by and among
Emeritus Corporation, a Washington corporation (the "Company"), Daniel R. Baty
and B.F., Limited Partnership (collectively, "Baty") and Merit Partners, LLC, a
New York limited liability company ("Northstar").
R E C I T A L S:
A. The Company and Northstar are parties to a Preferred Stock Purchase
Agreement, dated as of the date hereof, between the Company, as seller, and
Northstar, as purchaser (the "Purchase Agreement"), pursuant to which the
Company is issuing and Northstar is acquiring 25,000 shares of the Company's
Series A Convertible Exchangeable Redeemable Preferred Stock, par value $.0001
per share (the "Preferred Stock").
B. The parties hereto desire to provide for, among other things, certain
matters relating to the management of the Company, the ownership and transfer of
the Preferred Stock and the rights and remedies of Northstar.
A G R E E M E N T:
The parties agree as follows:
ARTICLE I
DEFINITIONS
Definitions. The following terms, as used herein, have the following
meanings:
"Affiliate" means, as to any Person, any other Person directly or
indirectly Controlling, Controlled by or under direct or indirect common Control
with such Person.
"Baty" is defined in the first paragraph of this Agreement.
"Capital Stock" means the Preferred Stock and any Common Stock into which
the Preferred Stock or Convertible Debentures are convertible.
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"Change of Control" means, as to any Person, a change, shift or transfer of
Control with respect to such Person (including any change in the Control of any
entity Controlling such Person).
"Common Stock" means the common stock, par value $.0001 per share, of the
Company.
"Company" is defined in the first paragraph of this Agreement.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of securities, partnership interests or by
contract, assignment or otherwise. The terms "Controlling" and "Controlled"
shall have meanings correlative to the foregoing.
"Convertible Debentures" means the Company's 9% Convertible Debentures due
2004.
"Designation" means that certain statement of rights and preferences and
other characteristics of the Preferred Stock pursuant to which the Preferred
Stock was authorized by the Company.
"Initial Northstar Director" shall mean David Hamamoto.
"1933 Act" means the Securities Act of 1993, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Northstar" is defined in the first paragraph of this Agreement.
"Northstar Director" shall mean the Initial Northstar Director and any
person chosen by Northstar and reasonably acceptable to the Company to be added
to the Company's Board of Directors as provided for herein.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
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"Preferred Stock" is defined in Recital A of this Agreement.
"Restricted Period" is defined in Section 2.1(b) of this Agreement.
"Restricted Person" is defined in Section 2.1(c) of this Agreement.
"Right of First Refusal" is defined in Section 2.1(c) of this Agreement.
"Right of First Refusal Notice" is defined in Section 2.1(d) of this
Agreement.
"Tag-Along Sale" is defined in Section 2.2(a) of this Agreement.
"Tag-Along Sale Date" is defined in Section 2.2(b) of this Agreement.
"Transfer" means any direct or indirect transfer, sale, conveyance, pledge,
hypothecation or other disposition, including, without limitation, any of the
foregoing which occurs by virtue of any Change of Control.
ARTICLE II
RESTRICTIONS ON TRANSFER; TAG-ALONG RIGHTS
SECTION 2.1. Transfers by Northstar. (a) Northstar shall not Transfer any
Capital Stock owned by it except as expressly permitted in this Section 2.1.
(b) Northstar agrees that for a period of twelve (12) months from the date
hereof (the "Restricted Period"), it will not Transfer any or all of the Capital
Stock.
(c) After the Restricted Period, Northstar may Transfer any or all of the
Capital Stock to any Person and on any terms without the consent of the Company;
provided, however, that in the event of any Transfer to any Person that at the
time of the Transfer is, or would become upon acquisition of any Capital Stock,
required to file under Section 13(d) of the 1934 Act (such Person, a "Restricted
Person"), the Company shall have a right of first refusal ("Right of First
Refusal")
<PAGE>
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in respect of any such Transfer as provided in paragraph (d) below.
(d) In the event Northstar at any time after the Restricted Period receives
and determines to accept an offer from a Restricted Person to purchase any or
all of the Capital Stock held by Northstar, Northstar shall deliver a written
notice to the Company (a "Right of First Refusal Notice") of such offer which
sets forth the number of shares of Capital Stock to be sold, the price at which
they are to be sold and any other terms and conditions of the offer. The Company
shall have seven (7) days following its receipt of the Right of First Refusal
Notice to elect to exercise its Right of First Refusal to purchase the Capital
Stock on the same terms, conditions and provisions set forth in the Right of
First Refusal Notice (the actual date of exercise, the "Exercise Date"). If the
Company shall so elect to exercise its Right of First Refusal, the Company
shall, within 21 days of the Exercise Date, (i) enter into a binding agreement
with Northstar to consummate the purchase upon substantially the same terms and
conditions as set forth in the Right of First Refusal Notice and (ii) pay to
Northstar an amount equal to 25% of the aggregate purchase price, it being
understood that the balance of the purchase price shall be paid by the Company
to Northstar, with interest at a rate of 9%, within 90 days of the Exercise
Date.
(e) Failure by the Company so to exercise its Right of First Refusal shall
constitute a waiver of the Company's Right of First Refusal as to that offer,
and Northstar shall have the right to consummate the transaction set forth in
the Right of First Refusal Notice on substantially the terms and at a purchase
price equal to or greater than the purchase price therein set forth, and, upon
closing of such transaction, the Company's Right of First Refusal shall
terminate with respect to such Right of First Refusal Notice. If (A) the closing
under the Right of First Refusal Notice shall not occur within 45 days of the
earlier of (x) the expiration of the seven-day period specified in paragraph (d)
above for the exercise of the Right of First Refusal and (y) the date upon which
the Company shall notify Northstar in writing that the Company does not elect to
purchase the Capital Stock pursuant to the terms set forth in the Right of First
Refusal Notice or (B) Northstar intends to sell the Capital Stock to a
Restricted Person with terms, conditions or provisions not substantially as set
forth in the Right of First Refusal Notice or at a purchase price less than the
purchase price set forth in the Right of First Refusal Notice, then in any such
event, Northstar shall again comply with the provisions set forth in Section
2(d).
<PAGE>
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(f) In the event that such Restricted Person acquires Capital Stock from
Northstar, such Restricted Person, as a condition to closing such acquisition,
shall enter into an agreement reasonably satisfactory to the Company to be bound
by the provisions of Section 2.1 (excluding, however, Section 2.1(b) hereof) and
Article IV of this Agreement.
SECTION 2.2. Tag-Along Provisions. (a) If at any time Baty shall receive
and determine to accept any offer from any Person to purchase or otherwise
transfer for value, in one transaction or a series of related transactions,
shares of Common Stock representing 50% or more of the Common Stock owned by
Baty (a "Tag-Along Sale"), then Baty shall afford Northstar the opportunity to
participate in such Tag-Along-Sale in the manner set forth in this Section 2.2.
(b) Baty shall provide Northstar with written notice of the proposed
Tag-Along Sale which sets forth the number of shares of Common Stock proposed to
be sold, the price at which they are to be sold, and any other terms or
conditions of the offer, not more than 60 days nor less than 30 days before the
proposed date of the Tag-Along Sale (the "Tag-Along Sale Date").
(c) Northstar shall have the right to cause Baty to condition the Tag-Along
Sale on the simultaneous purchase by the purchaser of such number of shares of
Common Stock owned by Northstar as Northstar shall designate in a written notice
to Baty no less than 20 days after the notice given in accordance with Section
2.2(b); provided, however, that Northstar may not so designate for purchase a
number of shares of Common Stock greater than the number owned by Northstar,
multiplied by a fraction the numerator of which is the number of shares of
Common Stock then outstanding and owned by Baty which are subject to the
Tag-Along Sale and the denominator of which is the total number of shares of
Common Stock then outstanding and owned by Baty. The purchase price for each
share of the Company's Common Stock to be sold by Northstar at the Tag-Along
Sale and the terms of such purchase shall be the same as those applicable to
Baty.
SECTION 2.3. Transfers to Comply with Laws. Notwithstanding any contrary
provision herein, Northstar may not Transfer or offer to Transfer any shares of
Capital Stock (or solicit any offers to Transfer any shares of Capital Stock),
except in compliance with the 1933 Act, as amended, and rules and regulations
promulgated thereunder and in compliance with
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any applicable state securities laws and rules and regulations promulgated
thereunder.
ARTICLE III
BOARD OF DIRECTORS; CORPORATE GOVERNANCE
SECTION 3.1. Board of Directors. (a) From and after the date hereof, the
Company and Baty shall take all such action as may be necessary to increase the
number of directors comprising the Company's Board of Directors so as to allow
for the nomination and election of the Northstar Directors at the times and as
specified below:
(i) as soon as practicable after the execution of this Agreement, the
Initial Northstar Director shall be added to the Company's Board of
Directors;
(ii) at such time as Northstar invests at least an additional $25,000,000
(whether in the form of indebtedness or equity) into the Company or
any Affiliate of the Company, an additional Northstar Director shall
be added to the Company's Board of Directors.
(iii)if at any time after the date hereof the number of members of the
Board of Directors of the Company is increased, additional Northstar
Directors shall be added to the Company's Board of Directors so as to
maintain Northstar's representation at a fraction not less than
one-seventh (1/7) of entire Board of Directors.
(b) Northstar's right to have one or more Northstar Directors added to the
Company's Board of Directors will terminate if (i) (x) it has sold of record any
of its initial investment in the Capital Stock (or the Convertible Debentures
for which it has been exchanged) and (y) the remaining shares of Capital Stock
held by Northstar represents less than 5% of the outstanding Common Stock (on a
fully diluted basis), (ii) there is a Change of Control of Northstar or (iii)
Northstar is unable to exercise independent voting control over the shares of
Capital Stock owned by it.
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(c) For so long as Northstar shall be entitled to the benefits of Section
3.1(a) of this Agreement, Northstar agrees not to exercise its rights as
provided for in Section 6(b) of the Designation. At such time as Northstar or
any holder of the Preferred Stock is no longer entitled to the benefits of
Section 3.1(a) of this Agreement, Northstar or such holder, as the case may be,
shall be entitled to exercise the rights set forth in Section 6(b) of the
Designation.
SECTION 3.2. Corporate Governance. (a) For so long as there has been no
Change of Control of Northstar and Northstar retains the power to vote the
shares comprising at least 50% of its initial investment, approval by the
Company's Board of Directors will be required for all material decisions,
including, but not limited to, the following:
(i) the incurrence by the Company or any Subsidiary of any indebtedness in
an amount exceeding that which is permitted by the resolutions of the
Board of Directors of the Company adopted on February 20, 1997;
(ii) any investment by the Company or any Subsidiary in an amount exceeding
that which is permitted by the resolutions of the Board of Directors
of the Company adopted on February 20, 1997;
(iii)the liquidation, dissolution or winding up of the Company or any
Subsidiary;
(iv) a sale or other disposition of all or substantially all of the assets
of the Company, other than to any Subsidiary;
(v) the merger or consolidation of the Company, other than any such merger
or consolidation between or among any of the Company (so long as the
Company shall be the surviving corporation) and any Subsidiary;
(vi) any affirmative action that would result in a fundamental change in
the nature of the business conducted by the Company or any Subsidiary,
other than actions compelled by law, rule, regulation, order or
decree;
(vii)the entry by the Company or a Subsidiary into any material
transaction with an Affiliate; and
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(viii) any amendment to the restated articles of incorporation or restated
by-laws of the Company which adversely affects the rights of Northstar
under this Agreement.
(b) Until October 24, 2001, the Company shall not, without the approval of
the Northstar Directors (i) issue shares of any equity security that are senior
or pari pasu to the Preferred Stock as to dividends or liquidation rights or
(ii) declare or pay any dividends on any of the Company's Common Stock. Section
8(c) of the Designation shall apply to any dividends paid pursuant to such
consent.
ARTICLE IV
STANDSTILL PROVISIONS
SECTION 4.1. Restrictions of Certain Actions by Northstar. (a) Unless
consented to in advance by the Company, Northstar will not, and will cause each
of its Affiliates not to, singly or as part of a partnership, limited
partnership, syndicate or other group (as those terms are defined in Section
13(d)(3) of the 1934 Act), directly or indirectly acquire, offer to acquire, or
agree to acquire, by purchase, gift or otherwise, any voting securities of the
Company other than the Preferred Stock and the Common Stock into which the
Preferred Stock and Convertible Debentures are convertible, except pursuant to a
stock split, stock dividend, rights offering, recapitalization, reclassification
or similar transaction.
(b) If Northstar or any of its Affiliates owns or acquires any voting
securities in violation of this Agreement, such voting securities shall
immediately be disposed of to persons who are not Affiliates thereof but only in
compliance with the provisions of this Agreement; provided, that the Company may
also pursue any other available remedy to which it may be entitled as a result
of such violation.
(c) Northstar will cause (i) any Person acquiring Capital Stock from
Northstar representing more than 25% of Northstar's initial investment or (ii)
any Restricted Person acquiring an interest in the Company from Northstar to
agree to be bound by provisions similar to those contained in this Article IV
and in Section 2.1 of this Agreement (excluding however, Section 2.1(b) hereof).
<PAGE>
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(d) The provisions of this Article IV will terminate as follows:
(i) if the Company commits a material breach of its obligations under
this Agreement, 30 days after written notice by Northstar to the
Company of such breach unless the Company cures such breach
within such 30-day period; and
(ii) 18 months after the date on which Northstar ceases to hold
Capital Stock representing 5% of the outstanding Common Stock (on
a fully diluted basis).
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Legends. Each certificate evidencing any of the Preferred
Stock shall bear a legend substantially as follows:
The shares represented by this certificate are subject to the terms and
conditions of a certain Shareholders' Agreement dated as of October 24,
1997, as at any time amended, which Shareholders' Agreement contains, among
other things, certain restrictions on the transfer of such shares and
restrictions on acquiring additional securities of the Company. A copy of
such Shareholders' Agreement is on file at the principal executive office
of the Company and will be furnished to the holder of this certificate upon
request and without charge.
SECTION 5.2. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile or similar writing) and
shall be given to such party at its address or facsimile number set forth on the
signature pages hereof or such other address or facsimile number as such party
may hereafter specify for the purpose by notice to the party sending the
communication. Each such notice, request or other communication shall be
effective (i) if given by facsimile, when such facsimile is transmitted to the
facsimile number specified in this Section and receipt is confirmed, (ii) if
given by mail, 72 hours after such communication is deposited in the mail
registered or
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certified, return receipt requested, with postage prepaid, addressed as
aforesaid, or (iii) if given by any other means, where delivered at the address
specified in this Section.
SECTION 5.3. Amendments and Waivers. Any provision of this agreement may be
amended if, but only if, such amendment is in writing and is signed by each of
the parties hereto. Any provision of this agreement may be waived if, but only
if, such waiver is in writing and is signed by each of the parties hereto.
SECTION 5.4. Successors and Assigns. The provisions of this agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no assignment of
rights under this agreement will be valid unless made in connection with a
contemporaneous Transfer of Capital Stock which is not prohibited by this
agreement. The Company may not assign or otherwise transfer any of its rights
under this agreement.
SECTION 5.5. Captions. The captions of this agreement are included for
convenience of reference only, do not constitute a part hereof and shall be
disregarded in the construction hereof.
SECTION 5.6. Counterparts; Effectiveness. This agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
SECTION 5.7. GOVERNING LAW. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE NOW OR
HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
(c) Upon breach or default by the Company with respect to any obligation
hereunder, Northstar (or its agents) shall be entitled to protect and enforce
their rights at law, or in equity or by other appropriate proceedings for
specific performance of such obligation, or for an injunction against such
breach or default, or in aid of the exercise of any power or remedy granted
hereby or thereby or by law.
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SECTION 5.8. Severability. Any term or provision of this agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
agreement, or affecting the validity or enforceability of any of the terms or
provisions of this agreement in any other jurisdiction.
SECTION 5.9. Headings. The Article and Section headings used or contained
in this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
SECTION 5.10. No Reliance. Each party hereto acknowledges that it has
obtained separate advice with respect to the legal, tax and accounting
consequences of the transactions contemplated by this Agreement, and that it has
neither sought nor relied upon any such advice from any other party hereto or
its Affiliates.
SECTION 5.11. Entire Agreement. This Agreement and agreements executed
contemporaneously herewith constitute the entire agreement among the parties
with respect to the subject matter hereof, and, as of the date hereof, there are
no promises or undertakings with respect thereto relative to the subject matter
hereof not expressly set forth or referred to herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
EMERITUS CORPORATION
By: /s/ Kelly J. Price
------------------------------
Name: Kelly J. Price
Title: Vice President of Finance,
Chief Financial Officer and Secretary
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Kelly J. Price
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
DANIEL BATY
/s/ Daniel R. Baty
----------------------------
Daniel R. Baty
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
B.F., LIMITED PARTNERSHIP
By: /s/ Daniel R. Baty
-------------------------------
Name: Daniel R. Baty
Title: General Partner
B.F., Limited Partnership
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Daniel R. Baty
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
<PAGE>
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ David Hamamoto
-------------------------------
Name: David Hamamoto
Title: Authorized Signatory
Merit Partners, LLC
299 Park Avenue, 33rd Floor
New York, New York 10022
Attn: Richard J. Sabella
Telephone: (212) 821-4602
Telecopier: (212) 821-4517
MERIT PARTNERS, LLC
OPERATING AGREEMENT
OPERATING AGREEMENT of MERIT PARTNERS, LLC, dated as of October 24, 1997,
by and between MERIT OPERATING, LLC a New York limited liability company
("Managing Member") and MERIT EQUITIES, LLC, a New York limited liability
company ("Investor Member," collectively, the "Members").
R E C I T A L S:
WHEREAS, the Members wish to form a limited liability company pursuant to
the laws of the State of New York;
WHEREAS, the Members wish to provide for the operation and management of
the Company for the purposes stated herein;
A G R E E M E N T:
NOW THEREFORE, in consideration of the mutual premises and covenants
contained herein, the parties agree as follows:
ARTICLE 1 - THE LIMITED LIABILITY COMPANY
1.01 Formation. The Members hereby form a limited liability company (the
"Company") subject to the provisions of the New York Limited Liability Company
Law (the "LLCL").
1.02 Filing; Publication. In connection with the execution and delivery of
this agreement, the Members shall cause (i) Articles of Organization that comply
with the requirements of the LLCL to be properly filed with the Secretary of
State of the State of New York, (ii) to be published a notice in form and
substance prescribed by Section 206 of the LLCL, at the times and in the
newspapers required by Section 206 of the LLCL and (iii) to be filed with the
Secretary of State of the State of New York, within 120 days after the filing of
the Articles of Organization, proof of
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publication required by Section 206 of the LLCL. In addition, the Members shall
execute such further documents (including amendments to the Articles of
Organization) and take such further action as is appropriate to comply with the
requirements of law for the formation or operation of a limited liability
company in all states and countries where the Company may conduct its business.
1.03 Name. The name of the Company shall be Merit Partners, LLC.
1.04 Registered Office; Registered Agent. The location of the registered
office of the Company shall be c/o CT Corporation System, 1633 Broadway, New
York, New York 10019 and thereafter at such other location as the Members may
designate. The Company's registered agent at such address shall be CT
Corporation System, 1633 Broadway, New York, New York 10019.
1.05 Events of Dissolution. The Company shall continue until October 20,
2005 unless sooner dissolved by:
(a) the affirmative vote of (i) the Managing Member, (ii) the Members
whose Capital Interests (as defined in Section 2.02) equals more than 50%
of all Capital Interests and (iii) the Non-Affiliated Member (as herein
defined);
(b) any event which makes it unlawful for the business of the Company
to be carried on by the Members;
(c) the resignation, expulsion, bankruptcy or dissolution of a Member
or the occurrence of any other event that terminates the continued
membership of a Member in the Company;
(d) the occurrence of a liquidation procedure pursuant to Section
8.03; or
(e) any other event causing a dissolution of a limited liability
company under the LLCL.
1.06 Continuance of the Company. Notwithstanding the foregoing provisions
of Section 1.05, upon the occurrence of an event described in subsection
1.05(c), the remaining Member or Members shall have the right to continue the
business of the Company. Such right may be exercised only by the affirmative
unanimous vote of the remaining Member or Members,
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within 90 days after the occurrence of an event described in subsection 1.05(c),
to continue the business of the Company. If not so exercised, the right of the
Members to continue the business of the Company shall expire and the Company's
affairs shall be wound up as provided in Article 8 hereof.
1.07 Intentionally Omitted.
1.08 Title to Company assets. Title to Company assets, whether real,
personal or mixed and whether tangible or intangible, shall be deemed to be
owned by the Company as an entity, and no Member, individually or collectively,
shall have any ownership interest in such Company assets or any portion thereof.
Title to any or all of the Company assets may be held in the name of the Company
or one or more nominees, including the Managing Member, as the Managing Member
may determine. All Company assets shall be recorded as the property of the
Company in its books and records, irrespective of the name in which record title
to such Company assets is held.
1.09 Power of Attorney. (a) Each Member hereby constitutes and appoints the
Managing Member, with full power of substitution, as its true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and
stead, to execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (i) all certificates, documents and other instruments
(including, without limitation, the Articles of Organization and all amendments
or restatements thereof) that the Managing Member deems necessary or appropriate
to form, qualify or continue the existence of qualification of the Company in
the State of New York and in all other jurisdictions in which the Company may
conduct business or own property; (ii) all certificates, documents and other
instruments that the Managing Member deems necessary or appropriate to reflect,
in accordance with its terms, any amendment, change, modification or restatement
of this Agreement; and (iii) all certificates, documents and other instruments
(including conveyances and a certificate of cancellation) that the Managing
Member deems necessary or appropriate to reflect the dissolution and liquidation
of the Company pursuant to the terms of this Agreement. Nothing contained in
this Section shall be construed as authorizing the Managing Member to amend this
Agreement except as expressly provided in this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive and not be affected
by the
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subsequent dissolution, bankruptcy or termination of any Member or the transfer
of any Capital Interest (as herein defined) and shall extend to a Member's
heirs, successors, assigns and personal representatives, but such power shall
terminate upon the dissolution of the Company.
1.10 Management of Business. The business of the Company shall be conducted
by its Managing Member, which may designate such individuals or other entities
(with which it may or may not be affiliated) to conduct the day-to-day
activities of the Company. The Managing Member may appoint such attorney-in-fact
or agent as it may determine from time to time. Such attorney-in-fact or agent
shall serve until their successors are designated by written action of the
Managing Member.
1.11 Character of Business. The business of the Company shall be to
transact any and all business as may be lawfully engaged in by limited liability
companies organized under the laws of the State of New York. The initial
business of the Company shall be to acquire, hold, own, manage, finance, or
dispose of by resale or otherwise $25,000,000 of convertible preferred stock
(the "Initial Securities") of Emeritus Corporation ("Emeritus"), or any other
interests (direct or indirect) in or to securities owned by Emeritus or its
affiliates or entities to be acquired by Emeritus (the "Additional Securities";
together with the Initial Securities, the "Securities"). The terms of any
Additional Securities must be approved by the members of the Investor Member not
affiliated with the Managing Member ("the Non-Affiliated Member"), which
approval shall not be unreasonably withheld or delayed.
1.12 Principal place of business. The location of the principal place of
business of the Company shall be at 299 Park Avenue, New York, NY 10171, or at
such other place as the Managing Member from time to time may select.
1.13 Members. The name and place of residence of each Member are as
follows:
Name Address
MERIT OPERATING, LLC 527 Madison Avenue
("Managing Member") 17th Floor
New York, NY 10022
MERIT EQUITIES, LLC 527 Madison Avenue
("Investor Member") 17th Floor
New York, NY 10022
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ARTICLE 2 - CAPITAL CONTRIBUTIONS
2.01 Initial contributions. The Members initially shall contribute to the
Company's capital the following property:
Merit Operating, LLC $2,500,000
Merit Equities, LLC $22,500,000
2.02 Capital Interests. The interests of the Members in the capital
originally contributed to the Company (the "Capital Interests") are as follows:
Name Capital Interests
Merit Operating, LLC 10%
Merit Equities, LLC 90%
2.03 Additional Contributions. The business of the Company may require
capital up to an aggregate amount of $75,000,000. At such times as the Managing
Member shall determine that additional amounts of capital beyond the amount
necessary to purchase the Initial Securities are required for the business of
the Company, the Managing Member shall notify the Investor Member in writing,
furnishing in general outline the purposes for which such additional amount of
capital is requested. Upon approval of the request by the Non-Affiliated Member,
which approval shall not be unreasonably withheld or delayed, the requested
amount shall be furnished by the Members in proportion to their Capital
Interests. The notice of such request shall be furnished by the Managing Member
and shall specify the date when the funds are desired, which shall not be less
than two business days from the date of the notice. All contributions of capital
to the Company shall be made by the Members in proportion to the Capital
Interests specified in Section 2.02 which Capital Interest percentages shall not
be varied without the consent of the Non-Affiliated Member. Any contribution of
capital to the Company which is not made in such proportions shall be returned
by the Company to the Member or Members who made such contribution. No Member
shall be obligated or permitted to make any other additional
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contribution to the Company's capital not specifically provided in this Section.
2.04 Capital Accounts. The Company shall maintain capital accounts in
accordance with the provisions of Section 6.02 of this Agreement.
2.05 No personal liability. No Member shall have any individual liability
to the Company or to the other Members or to any third party with which the
Company may deal or transact business to make any additional capital
contribution. No additional claims or rights may be asserted by any third party
claimant or creditor of the Company or by any receiver, trustee, or other person
acting or purporting to act on behalf of the Company or the Member. No
participant in any Member and no officer, director, partner or owner of any
Member shall have any liability with respect to additional capital
contributions.
ARTICLE 3 - PROFITS, LOSSES AND DISTRIBUTIONS
3.01 Profits and Losses. The Company's net profits or net losses shall be
determined on an annual basis, in accordance with Section 6.04, and shall be
allocated to the Members in proportion to their Sharing Ratios. The "Sharing
Ratio" of each Member shall be equal to the percentage of the total of Capital
Interest held by such Member from time to time.
3.02 Allocations for Tax Purposes. For income tax purposes, each item of
income, gain, loss, deduction and credit of the Company shall be allocated among
the Members in their respective Sharing Ratios, except that gain or loss with
respect to property contributed to the Company by a Member or revalued pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) shall be allocated among
the Members in a manner that takes into account the variation between the
adjusted tax basis of such property and its book value, as required by Section
704(c) of the Internal Revenue Code and Treasury Regulations Section
1.704-1(b)(4)(i), using any method permitted by applicable Treasury Regulations.
3.03 Distributions. Annually or at more frequent intervals, at the
discretion and determination of the Managing Member, or at such other time as
may be required under any provision of this Agreement, then available funds
shall be distributed to the Members in proportion to their Sharing
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Ratios. "Available funds" for this purpose means the Company's gross cash
receipts, less the Company's expenditures, and less the amount that, in the
Managing Member's reasonable judgment, the Company should retain in order to
fulfill its business purposes; provided that no amounts shall be retained for
purposes of acquiring Additional Securities without the consent of the
Non-Affiliated Member.
3.04 Capital Withdrawal. No member shall have the right to withdraw any
amount from its capital account or receive a distribution of property or cash
unless approved by the Managing Member.
ARTICLE 4 - MANAGEMENT
4.01 Members. The liability of the Members shall be limited as provided in
the LLCL. No Member shall be liable for the debts, obligations, or liabilities
of the Company.
4.02 Powers of Managing Member to Manage Business of Company. The Managing
Member shall, except as specifically provided in this Agreement, make all
decisions concerning (a) the development, sale, lease or other disposition of
the Company's assets; (b) the purchase or other acquisition of other assets of
all kinds; (c) the management of all or any part of the Company's assets; (d)
the borrowing of money and the granting of security interests in the Company's
assets (including loans from Members); (e) the prepayment, refinancing or
extension of any mortgage affecting the Company's assets; (f) the compromise or
release of any of the Company's claims or debts; and (g) the employment of
persons, firms or corporation for the operation and management of the Company's
business, including affiliates of the Managing Member (so long as such
engagement is on reasonable and fair market terms and compensation and has been
approved by the Non-Affiliated Member in accordance with Section 5.01).
4.03 Exercise of Management Powers. In the exercise of management powers in
accordance with the terms hereof, the Managing Member, or such attorney-in-fact
or agent as the Managing Member shall designate or appoint, are authorized to
execute and deliver (a) all contracts, conveyances, assignments, leases,
subleases, franchise agreements, licensing agreements, management contracts and
maintenance contracts covering or affecting the Company's assets; (b) all
checks, drafts and other orders for the payment of the Company's funds;
<PAGE>
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(c) all promissory notes, mortgages, deeds of trust, security agreements and
other similar documents; and (d) all other instruments of any kind or character
relating to the Company's affairs, whether like or unlike the foregoing. No
Member acting without the authorization required under this Section shall have
management power over the business and affairs of the Company or actual or
apparent authority to enter into contracts or bind the Company, except as may be
specifically authorized by the remaining Members pursuant to this Article 4.
4.04 First Offer on Sale. At such time as the Managing Member shall
determine to sell any property of the Company, it shall first notify the
Investor Member and the Non-Affiliated Member of the proposed sale, including in
the notice with sufficient specificity a description of the assets proposed for
sale and the price and other terms and conditions on which such proposed sale
would be effected. The Non-Affiliated Member shall have a period of not less
than 15 business days to elect whether it shall purchase such property at such
time and if it does so elect, it shall consummate the purchase in not more than
15 business days after such election. If the Non-Affiliated Member does not make
such election, then the Managing Member may effect the sale at not less than 95%
of the price, and on other terms and conditions no less favorable than the other
terms and conditions if any, set forth in its notice. If such sale does not take
place within ninety (90) days after the notice from the Managing Member, then a
new notice shall be required before such sale is proposed or implemented for the
property.
4.05 Limitations on Borrowing. The authority granted to the Managing Member
to finance the capital needs of the Company shall be limited to an aggregate
amount of $50,000,000, which amount may be borrowed on such fair market terms as
are approved by all of the members of the Investor Member, which approval shall
not be unreasonably withheld or delayed. Such borrowings may be secured by a
pledge of the property and assets of the Company.
4.06 Appointment of Officers or Representatives. The Members, acting
pursuant to this Article 4, may appoint such agents or representatives as they
deem appropriate, and may grant to them such titles or designations, including
that of President, Vice President, Managing Agent or Managing Director, as they
may deem necessary or appropriate.
4.07 Nominee. Title to the Company's assets shall be held in the Company's
name or in the name of any nominee
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that the Managing Member may designate. The Managing Member shall have power to
enter into a nominee agreement with any such person, and such agreement may
contain provisions indemnifying the nominee, except for his or its gross
negligence or willful misconduct.
4.08 Time Devoted to Business. The Members shall devote such time to the
business of the Company as they in their discretion deem necessary for the
efficient operation of the Company's business. The Members shall at all times be
free to engage for their own account in all aspects of any business or
investment in which the Company is involved; provided however that none of the
Managing Member, its members, the Investor Member, Northstar Capital Partners
and their respective affiliates shall directly or indirectly make any
investments in or enter into transactions with Emeritus or its affiliates except
directly or indirectly through the Company or with the consent of the
Non-Affiliated Member.
4.09 Information Relating to Company. Each Member or his or its authorized
representative shall have access to and may inspect and copy all books, records
and materials regarding the Company or its activities.
4.10 Exculpation. Any act or omission of a Member the effect of which may
cause or result in loss or damage to the Company or the Members if done in good
faith to promote the best interests of the Company shall not subject such Member
to any liability to any other Member or to the Company.
4.11 Indemnification. Any person acting on behalf of the Company, whether
as Member designated to do so under the provisions of this Article 4 or as
attorney-in-fact or agent under the provisions of Section 1.09, shall, to the
fullest extent permitted by law, be indemnified and held harmless by the Company
from and against any and all losses, claims, damages, liabilities, joint or
several, expenses (including reasonable legal fees and expenses), judgments,
fines, penalties, interests, settlements, and other amounts arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, relating to the activities of such person
acting on behalf of the Company in any of such capacities. The indemnification
provided in this Section shall extend to the fullest extent as would be
permitted by applicable law of the State of New York affording indemnification
to persons acting on behalf of corporations organized in such State. However, no
Member, attorney-in-fact or agent of the Company shall be
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indemnified for any act or omission constituting gross negligence or willful
misconduct.
4.12 Records at Principal Place of Business. The Managing Member shall
cause the Company to keep at its principal place of business the following:
(a) a current list in alphabetical order of the full name and last
known business street address of each Member;
(b) a copy of the Articles of Organization and all certificates of
amendment thereto, together with (i) receipts of filing thereof, and (ii)
executed copies of any powers of attorney pursuant to which any certificate
of amendment has been executed;
(c) copies of the Company's federal, state and local income tax
returns and reports, if any, for the three most recent years; and
(d) copies of any financial statements of the Company, if any, for the
three most recent years.
4.13 Tax Matters Member. The "tax matters partner" of the Company pursuant
to Section 6231(a)(7) of the Internal Revenue Code shall be the Managing Member.
Such tax matters partner shall be authorized to represent the Company in
connection with all matters relating to the tax status, tax reports or filing of
the Company.
ARTICLE 5 - COMPENSATION
5.01 No Entitlement to Compensation. No Member acting on behalf of the
Company shall be entitled to compensation or remuneration except as may be
specifically provided in this Agreement or otherwise by the Members. This
provision shall not limit any compensation or remuneration which any Member
shall receive from any other entity with which the Company may be an affiliate
or in which the Company is a participant or partner. It is specifically
understood that affiliates or subsidiaries of the Managing Member may render
administrative or management services to the Company and shall receive payment
for such services on a customary and reasonable commercial basis.
Notwithstanding the foregoing, all transactions, agreements or arrangements by
and among the
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Company, the Managing Member, the members of the Managing Member, the Investor
Member, MI Manager LLC, Northstar Capital Partners LLC and/or any of their
respective affiliates involving payment or other consideration to be borne by
the Company or the Investor Member and all compensation payable with respect
thereto shall require consent of the Non-Affiliated Member which approval may be
unconditionally withheld.
5.02 Structuring Fee Payment. In addition to any other amounts to be paid
as compensation under the provisions of this Article 5, Northstar Capital
Partners LLC, a Delaware limited liability company, the owner of one of the
members of the Investor Member, shall be entitled to receive a fee (the
"Structuring Fee") equal to 0.67% of the purchase price of the Initial
Securities and any Additional Securities. The Structuring Fee shall be paid from
the first amounts of cash proceeds upon sale or dividends or other cash
distributions received by the Company with respect to the Securities or any
Additional Securities. Such amount shall be paid from the amounts held by the
Company promptly upon receipt.
5.03 Reimbursement. The Company shall reimburse the Members for all direct
out-of-pocket expenses incurred by them in managing or acting on behalf of the
Company, where such management or action was authorized or directed by the
Company.
ARTICLE 6 - ACCOUNTS
6.01 Books. The Members shall maintain complete and accurate books of
account of the Company's affairs at the Company's principal place of business.
Such books shall be kept on such method of accounting as the Members shall
select. The Company's accounting period shall be the calendar year.
6.02 Member Capital Accounts. Separate capital accounts shall be maintained
for each Member. Each Member's capital account shall consist of the initial
capital contribution made by the Member increased by any additional capital
contributions made and the Member's share of the profits of the Company, and
decreased by (a) distributions to the Member, and (b) the Member's share of
Company losses. Such capital accounts shall be maintained in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv), and shall be adjusted
appropriately to reflect any other adjustments required in accordance with that
Regulation, except to the
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extent such adjustments would materially affect the amount or timing of any
amount otherwise distributable hereunder.
6.03 Transfers During Year. To avoid an interim closing of the Company's
books, the share of profits and losses under Article 3 of a Member who
transferred part or all of its interest in the profit or loss and capital of the
Company during the calendar year shall be determined by taking the proportionate
share of the amount of the profits and losses for the year. The proration shall
be based on the portion of the calendar year that has elapsed prior to the
transfer. The balance of the profits and losses attributable to the transferred
interest shall be allocated to the transferee of such interest.
6.04 Reports. The Managing Member shall cause there to be prepared and sent
to each Member and the members of the Investor Member monthly statements of
income and expenses and annual reports of the business and operations of the
Company in accordance with generally accepted accounting principles consistently
applied, including a balance sheet, statement of income and expenses and the
capital of the members. The books of account shall be closed promptly after the
close of each calendar year, and there shall be prepared and sent to each Member
a statement on Treasury Form K-1 of such Member's distributive share of income
and expense for federal income tax reporting purposes within 75 days of the end
of the calendar year.
6.05 Access to Books and Records. The Non-Affiliated Member shall have full
and complete access to all of the financial and other books and records of the
Company.
ARTICLE 7 - TRANSFERS
7.01 Assignment of Membership Interest. Any direct or indirect transfer by
either Member of all or any portion of its Membership Interest (as defined in
the LLCL) in the Company or of any interest in the profit or loss or capital of
the Company prior to the dissolution and winding up of the Company, shall
require the express written consent of the non-transferring member and the
Non-Affiliated Member prior to such transfer. Any purported assignment in
violation of this Section 7.01 shall be null and void.
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7.02 Substitution of Transferee as Member. No permitted transferee,
designee or legal representative of a Member shall become a substitute Member
without the consent of the Non-Affiliated Member, which consent may not be
unreasonably withheld or delayed. In the event that such a consent is not
granted, the transferee has no right to participate in the management of the
business and affairs of the Company and is entitled only to receive the share of
profits or other compensation by way of income and the return of contributions
to which that member would otherwise be entitled. As conditions to its admission
as a substitute member (a) any transferee, designee or legal representative of
the Member shall execute and deliver such instruments and furnish such opinions
of counsel, in form and substance satisfactory to the remaining Members to cause
it to become a substitute Member, and (b) such transferee, designee or legal
representative shall pay all reasonable expenses in connection with its
admission as a substitute Member, including, without limitation, the cost of
preparation and filing of any amendment of this Agreement or the Articles of
Organization necessary or desirable in connection therewith.
7.03 Admissions of New Members. Any admission of a new member into the
Company shall require the express written consent of the Non-Affiliated Member
prior to such admission. Any purported admission of a new member into the
Company in violation of this Section 7.03 shall be null and void.
7.04 No Transfers in Certain Cases. Notwithstanding any provision of this
Article 7 to the contrary, no transfer of any membership or other interest in
the Company shall be permitted, if after giving effect thereto the Company would
be required to register as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). Any purported transfer
which would cause a violation of this Section shall be null and void, and shall
not give rise to any obligation on the part of the Company. In connection with
any proposed transfer, the Managing Member may request the proposed transferor
to furnish an opinion of counsel to the effect that the proposed transfer would
not cause the Company to be required to register under the Investment Company
Act. Such counsel shall be entitled to request, receive and rely upon a
certificate from the Company as to such factual matters concerning the Company
and the Members as may be reasonably necessary in order to render such an
opinion.
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ARTICLE 8 - DISSOLUTION AND TERMINATION
8.01 Final Accounting. In case of the Company's dissolution, a proper
accounting shall be made from the date of the last previous accounting to the
date of dissolution.
8.02 Liquidation. Upon the Company's dissolution and the failure of the
remaining Members to continue the Company as provided in Section 1.06, the
remaining Members or, if none, a person selected by a majority in Capital
Interest of the Members and approved by the Non-Affiliated Member, which
approval may be unconditionally withheld, shall act as liquidator to wind up the
Company. The liquidator shall have full power and authority to sell, assign and
encumber any or all of the Company's assets and to wind up and liquidate the
Company's affairs in an orderly and prudent manner. The liquidator shall apply
and distribute any liquidation proceeds or assets of the Company in kind in the
following manner and in the following order of priority:
(a) to the payment of the debts and liabilities of the Company (other
than the capital accounts of the Members) and to the expenses of
liquidation in the order of priority as provided by law; then
(b) to the establishment of any reserves deemed reasonably necessary
by the liquidator for the payment of any contingent or unforeseen
liabilities or obligations of the Company and, at the expiration of such
period as reasonably deemed advisable by the liquidator, the balance of
such reserves shall be applied and distributed in the manner hereinafter
provided in this Section 8.02; then
(c) to the Members in proportion to, and in payment of, the remaining
respective capital accounts of the Members as of the date of distribution,
as adjusted and computed pursuant to Article 3, Section 6.02, and any other
applicable provisions hereof through the anticipated liquidation of the
Company.
8.03 Supplemental Liquidation Procedure. (a) The Non-Affiliated Member may
initiate a liquidation procedure in the event that (i) either David Hamamoto or
W. Edward Scheetz shall cease to be active in the management of the Managing
Member, (ii) the Managing Member or any of its principals or affiliates shall
have committed any fraud, (iii) such member determines, at any time after the
third anniversary of the date
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hereof, to liquidate its investment in the Company or (iv) if, at any time after
the first anniversary of the issuance of the Initial Securities, the average
closing price of Emeritus Common Stock for any period of 45 consecutive trading
days shall be less than 75% of the average closing price thereof for the 45
consecutive trading days preceding the date hereof.
(b) To initiate the liquidation procedure, the Non-Affiliated Member shall
send a written notice to such effect to all the Members. Within thirty (30) days
after receipt of such notice, the Managing Member, or in such case that this
Section 8.03 is triggered by Section 8.03(a)(ii), the Non-Affiliated Member,
shall elect to either (i) sell the Securities for cash on the best terms then
available or (ii) distribute the Securities in kind to the Members in accordance
with Section 8.02.
(c) In the event that the Managing Member elects to sell the Securities, it
shall make all reasonable efforts to do so within a reasonable time.
Alternatively, the Managing Member may elect to cause the Securities to be sold
in a registered public offering, which the Managing Member will endeavor to
cause to be completed within a reasonable time. If the Securities are sold
privately, each member of the Investor Member will have a right to purchase all
the Securities for a price and on terms no less favorable to the Company than
the best price and terms offered from any financially able bidder for the
Securities; provided that if all members of the Investor Member elect such
right, then they shall be entitled to purchase their respective proportionate
shares thereof determined in accordance with their capital interests in the
Investor Member.
(d) In the event only one member of the Investor Member elects to purchase
the Securities, such member may, alternatively elect to purchase the interests
of the other party in the Investor Member for a price equal to the net
liquidation distributions to which the other party would have been entitled had
the electing party so purchased the Securities for cash.
(e) In the event that the Managing Member elects to distribute the
Securities in kind to the Members, then all of the members of the Investor
Member shall agree upon an independent, nationally recognized investment bank to
value the Securities. Each tranche or class of the Securities, based on such
valuation, and all other assets of the Company shall be distributed in
accordance with Section 8.02.
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8.04 Cancellation of Certificate. Upon the completion of the distribution
of Company assets, the Company shall be terminated and the Members shall cause
the Company to execute articles of dissolution and take such other actions as
may be necessary or appropriate to terminate the Company.
8.05 Deficit Accounts. No Member shall have any obligation to restore any
negative balance in its Capital Account upon liquidation of the Company.
ARTICLE 9 - AMENDMENT TO AGREEMENT
Any amendment to this Agreement and to the Articles of Organization may
become effective at such time as it has been approved in writing by two-thirds
in Capital Interest of the Members and the Non-Affiliated Member.
ARTICLE 10 - GENERAL PROVISIONS
10.01 Arbitration. Any claim or controversy arising out of or relating to
this Agreement or a breach hereof shall, upon the request of any party involved,
be submitted to and settled by arbitration in accordance with the then existing
rules in New York City of the American Arbitration Association, but providing
for the arbitrators to fix as part of the arbitration determination the manner
in which the parties to such arbitration shall share the costs thereof, or such
other form of arbitration as the parties may accept. The decision made pursuant
to such arbitration shall be binding and conclusive on all parties involved and
judgment upon such decision may be entered in any appropriate court having
jurisdiction.
10.02 No partition rights. No Member shall be entitled to receive property
other than cash on account of any distribution to be made and no Member shall
have any right to partition of any interest in real property or personal
property owned or acquired at any time by the Company, whether under any statute
or rule of law.
10.03 Notices. Any and all notices, designations, consents, offers,
elections, acceptances or other communications provided for in this Agreement
shall be in writing and delivered in any of the following ways: (1)
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personally, (2) by registered or certified mail (return receipt requested), sent
by airmail where outside of the continental United States, (3) by reputable
overnight private courier service, or (4) where a Member or other party has
furnished a fax communication number, by such fax communication, to the Members
at the addresses shown in the Section 1.13 to this Agreement. In addition, a
copy of any and all notices sent to the Members shall be sent to the
Non-Affiliated Member, c/o Soros Fund Management LLC, 888 Seventh Avenue, New
York, New York 10106. Any of the addresses provided for the Members or for the
copies described in this Section may be changed by notice given in accordance
with the provisions of this Section. Any notice sent by registered or certified
mail shall be deemed made or given upon receipt.
10.04 Effect of agreement. This Operating Agreement (a) contains the entire
agreement among the parties, (b) may not be amended nor may any rights hereunder
be waived except by an instrument in writing signed by the party sought to be
charged with such amendment or waiver, (c) shall be construed in accordance
with, and governed by, the laws of New York, applicable to agreements executed
and wholly performed therein, and (d) shall be binding upon and shall inure to
the benefit of the parties and their respective personal representatives,
successors and permitted assigns, except as above set forth.
10.05 Construction. Words in any gender shall be deemed to include the
other genders. The singular shall be deemed to include the plural and vice
versa. The headings and underlined paragraph titles are for guidance only and
shall have no significance in the interpretation of this Operating Agreement.
All pronouns or variations shall be deemed to include masculine, feminine, or
neuter, singular, or plural as the context or identity may require.
10.06 Partial invalidity. If any provision of this Agreement or the
application thereof to any person or circumstance is determined to be invalid or
unenforceable, the remaining provisions or the application to other persons or
circumstances shall not be affected and shall be valid and enforceable to the
fullest extent permitted by law.
10.07 No oral change. No change or termination of this Agreement may be
made except in a writing signed in the manner provided and required herein.
10.08 Counterpart copies. This Agreement may be executed in counterpart
copies which, taken together, shall
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constitute the Agreement. A copy of the fully constituted Agreement shall be
furnished by the Managers to each Member.
<PAGE>
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IN WITNESS WHEREOF, the undersigned acknowledges that the matters and facts
set forth in this operating agreement are true and it has signed this operating
agreement as set forth below to be effective as of the date first above written.
MERIT OPERATING, LLC,
Managing Member
By: NORTHSTAR OPERATING, LLC
By: /s/ David Hamamoto
----------------------------------------------
Name: David Hamamoto
Title: Authorized Signatory
MERIT EQUITIES LLC,
Investor Member
By: MI MANAGER, LLC
By: NORTHSTAR CAPITAL PARTNERS, LLC
By: NORTHSTAR CAPITAL HOLDINGS I, LLC
By: /s/ David Hamamoto
---------------------------------------------
Name: David Hamamoto
Title: Manager
Joint Filing Agreement
Pursuant to Rule 13d-1(f)
The undersigned hereby agree, pursuant to Rule 13d-1(f) under the
Securities Exchange Act of 1934, as amended, that the annexed Statement on
Schedule 13D and all amendments thereto shall be filed on behalf of each of
them.
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ W. Edward Scheetz
-------------------------------
Name: W. Edward Scheetz
Title: Authorized Signatory
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/s/ Sean C. Warren
--------------------------------------
GEORGE SOROS
By: Sean C. Warren,
Attorney-in-fact
SOROS FAMILY PARTNERS, L.P.
By: /s/ Gary Gladstein
---------------------------------
Name: Gary Gladstein
Title: General Partner
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, GEROGE SOROS, hereby make,
constitute and appoint each of SEAN C. WARREN and MICHAEL C. NEUS, acting
individually, as my agent and attorney-in-fact for the purpose of executing in
my name, (a) in my personal capacity or (b) in my capacity as Chairman of,
member of or in other capacities with Soros Fund Management LLC, all documents,
certificates, instruments, statements, filings and agreements ("documents") to
be filed with or delivered to any foreign or domestic governmental or regulatory
body or required or requested by any other person or entity pursuant to any
legal or regulatory requirement relating to the acquisition, ownership,
management or disposition of securities or other investments, and any other
documents relating or ancillary thereto, including but not limited to, all
documents relating to filings with the United States Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934 (the "Act") and the rules and regulations promulgated
thereunder, including: (1) all documents relating to the beneficial ownership of
securities required to be filed with the SEC pursuant to Section 13(d) or
Section 16(a) of the Act including, without limitation: (a) any acquisition
statements on Schedule 13D or Schedule 13G and any amendments thereto, (b) any
joint filing agreements pursuant to Rule 13d-1(f) and (c) any initial statements
of, or statements of changes in, beneficial ownership of securities on Form 3,
Form 4 or Form 5 and (2) any information statements on Form 13F required to be
filed with the SEC pursuant to Section 13(f) of the Act.
All past acts of the attorney-in-fact in furtherance of the foregoing are
hereby ratified and confirmed.
This power of attorney shall be valid from the date hereof until revoked by
me.
IN WITNESS WHEREOF, I have executed this instrument as of the 1st day of
January, 1997.
/s/ George Soros
-----------------------------
GEORGE SOROS
